Data driven -...

Data driven advertising platforms

2017 Annual Report and Accounts

About Matomy

Matomy Media Group Ltd. (LSE: MTMY, TASE: MTMY.TA)

is a global technology company with a portfolio of superior,

data-driven advertising platforms including MobFox, myDSP, Team

Internet, Optimatic and WhiteDelivery.

By providing customized programmatic and performance solutions

supported by unique data analytics and optimization technology,

Matomy empowers advertising and media partners to best

meet their evolving growth-driven goals. Founded in 2007 with

headquarters in Tel Aviv and offices in the US, UK, Austria, Germany

and China, Matomy is dual-listed on the London and Tel Aviv Stock

Exchanges. Learn more about Matomy at investors.matomy.com

Content GuideOverview

Strategic Report

Corporate Governance

Financial Statements4

3

2

1

6 2017 Operational & Business Highlights

8 Matomy Overview

14 Introduction to Strategic Report

16 Chairman’s Statement

18 CEO’s Statement

22 Vision & Growth Strategy

26 Business & Financial Review

36 Principal Risks & Uncertainties

47 Corporate Social Responsibility

53 Board of Directors

58 Directors’ Report

64 Corporate Governance Report

68 Audit Committee Report

76 Remuneration Policy for Executive Directors & Senior Managers

78 Policy for Executive Directors & Senior Executives

89 Directors’ Responsibilities Statement

94 Report of Independent Auditors

96 Consolidated Balance Sheets

98 Consolidated Statement of Operations

99 Consolidated Statement of Changes in Shareholder Equity

100 Consolidated Statements of Cash Flows

103 Notes to Consolidated Financial Statement

133 Shareholder information

Matomy Media Group Ltd. Annual Report and Accounts 2017 | 32 | Matomy Media Group Ltd. Annual Report and Accounts 2017

Overview1

6 2017 Operational

& Business Highlights

8 Matomy Overview

4 | Matomy Media Group Ltd. Annual Report and Accounts 2017

In May 2017, Matomy announced a new strategic focus on core activities - Team Internet (domain monetisation) and Mobfox (programmatic in-app advertising) resulting in higher revenue stability, gross margins and profitability. The Company exited non-core activities and significantly reduced the corporate team and operational overhead.

2017 Operational & Business Highlights

FY2016: $63.3M

FY2016: $14.8M FY2016: 24.8%

$105.4M+66%

$24.5M +65%

27.8% +12%

Mobfox Revenue

FY2016: $42.1M

$50.6M+20%

Team Internet Revenue

Team Internet EBIDTA

Mobfox Adjusted Gross Margin

July 2017

July 2017 FY2016: $17.7M

SOLD

SOLD$20.7M

+16%

MATOMYRevenue

FY2016: $276.6M

$245.1M(11.4%)

Performance by Matomy

mtmy Mobile Performance Agency

Matomy EBIDTA

STRATEGICREPORT

CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

OVERVIEW


Matomy is a global leader in data driven advertising

platforms. 2017 was a year of transition, as Matomy

focused on core activities, exited certain non-core

activities, and reduced operational costs. The core

activities of programmatic mobile advertising and

domain monetisation have grown nicely in 2017,

and the Company is poised to enjoy the full effects

of the new focus in the year ahead. The Board and

Management are confident that the core activities will

continue to grow and raise revenues through 2018

and beyond.

Matomy Overview

STRATEGICREPORT



OVERVIEW

Matomy’s Core Activities Around The World

Matomy is staying close to those international markets where growth opportunities remain highest. The

company’s presence in the United States, Europe and China continues to yield significant benefits in terms of

new customers, broader partnerships and greater integration into the advertising ecosystem. The following

table sets out Matomy’s revenues by geographical region only for the core activities.

$ millions 2017 2016 Change

USA 110 74.5 47.7%

Europe 25.2 21.4 17.8%

Asia 9.7 5.7 70.2%

Other 11.1 3.8 192.1%

Total 156 105.4 48.0%

USA

Revenues generated in the US market increased by $35.5 million, or 47.7%, to $110.0 million for the year ended

31 December 2017 from $74.5 million last year, due to continued growth focused particularly in the mobile and

programmatic based activities, which are strongly centered on the US market.

Europe Revenues generated in the European market increased by $3.8 million, or 17.8%, to $25.2 million for the year

ended 31 December 2017 from $21.4 million last year, demonstrating the strength of the domain monetisation

activity throughout Europe. Increasing regulations around privacy and digital advertising within Europe may

have a negative impact on the Group’s ability to maintain this rate of growth in 2018.

Asia Revenues generated in Asian markets increased by $4.0 million, or 70.2%, to $9.7 million for the year ended 31

December 2017 from $5.7 million in 2016, demonstrating the penetration of the mobile programmatic activity

primarily in China.

Leading the Domain Monetisation Market

Domain monetisation revenues increased by $42.1 million, or 66%, to $105.4 million for the year ended 31

December 2017 from $63.3 million last year. The proprietary ad delivery engines serve semantically relevant ads


to approximately 2 billion monthly visitors across about 145 million websites, generating more than 100 million

paid clicks per month. Team Internet’s growth, which is consistent over the years, is mainly attributable to its leading

technology across its various platforms. The technology yields enhanced performance in comparison to peers and

has led to increased recruitment of new clients and higher market share.

*Selected Team Internet (Domain Monetisation) Financial Data in thousands U.S. dollars

Year ended 31 December

2017 2016 Change

Revenues 105.4 63.3 66.5%

Adjusted gross profit* 30.3 19.3 57%

Adjusted gross margin* 28.8% 30.5% -5.7%

Adjusted EBITDA** 24.5 14.8 65.5%

Preferred Partner for Programmatic In-app Advertising

Programmatic mobile in-app (Mobfox) revenues increased by $8.5 million, or 20% to $50.6 million for the year

ended 31 December 2017 from $42.1 million last year.

The mobile in-app activity includes platforms for the selling (supply) and buying (demand)

of advertising media, as well as a data management platform and advertising exchange.

This rise in profit was driven by strong growth in the recruitment and retention of new media sources and buyers with a

low churn rate, as well as improvements to Mobfox’s auction mechanism and introduction of new platform features that

raised competitive advantage.

The Mobfox activity leverages anonymized user data for improved audience targeting, thereby enhancing advertising

ROI for demand partners, and improving monetisation for supply partners, thus enhancing the revenue stream. We also

saw compelling growth in

the in-app video activity, the fastest growing advertising format on the Mobfox platform.

As part of Mobfox’s enhanced business offering, Mobfox decided to turn away partners with lower quality traffic, so in

fact this increase is even more significant and is based on more sustainable revenues.

Selected Mobfox (Programmatic Mobile Advertising) Financial Data

STRATEGICREPORT



OVERVIEW


2017 2016 Change

Revenues 50.6 42.1 20.1%

Adjusted gross profit* 14.0 10.4 34.4%

Adjusted gross margin* 27.8% 24.8% 12.1%

Adjusted EBITDA** 1.8 2.0 -10%

Email and Video Activity in Volatile Markets

Email media channel revenues decreased by $11.3 million, or 48%, to $12.2 million for the year ended 31 December

2017 from $23.5 million last year. This decrease was mainly attributableto the temporary inability to complete certain

email delivery processes, following the introduction of new compliance tools by certain Internet service providers

(ISPs). In addition, the consolidation and merger of external infrastructures through which emails are delivered also

impacted the ability to deliver emails at full capacity.

Video media channel revenues decreased by $50.0 million, or 47%, to $55.4 million for the year ended 31 December

2017 from $105.4 million in last year. Industry changes reduced the quantity and value of available video advertising

inventory from sellers, while enforcing stricter quality requirements by video advertisers. As a result, scale and margins

decreased across the video industry.

In 2018, the Board instructed the Company to carefully review and provide a plan regarding the remaining non-core

activities per their contribution to the Company’s value-creation strategy. The plan may include divestment, reduction

and/or closure. The Company is in final stages of establishing its findings.

Exited Activities

At the time of sale, the exited activities showed a consistently decreasing trend in both revenue and profitability and

required resources which caused Matomy to deviate from its core growth activities. The exited activities include legacy

display, social and search and virtual currency media channels. These exited activities will not be included in results for

periods going forward.


Strategic Report2

14 Introduction

to Strategic Report

16 Chairman’s Statement

18 CEO’s Statement

22 Vision & Growth Strategy

26 Business & Financial Review

36 Principal Risks

& Uncertainties

47 Corporate Social

Responsibility


Introduction to Strategic Report

In 2017, we implemented a carefully

designed strategic plan to increase company

profitability and grow Matomy’s market

influence in the adtech space.

In an environment of flux, Matomy maintains

a tight hold on industry developments and

takes advantage of market opportunities.

Today, we are a strong, tight operation

with clear vision and definitive action. We

are dedicated to technical superiority in

our product, transparency in our business

dealings and delivering flawless experience

for our users. The Matomy Media Group

nurtures its brands and provides each with

the tools to aspire to excellence and to

achieve success in their respective markets.

This past year was about transformation:

about refining who we are for enhanced

results. 2018 will be about gathering that

force to inform our activity and craft our

larger future.

LIAM GALINChief Executive Officer

STRATEGICREPORT



OVERVIEW


strategy expert with senior management experience as

Matomy’s COO/CFO, took over the position. Under his

leadership, the senior management team crafted the

strategic plan we are currently following and helped

initiate its implementation. In early January of 2018,

Sagi was replaced with Liam Galin, a seasoned tech

CEO who will grow the brands under our stewardship

to competitive advantage and growth through

groundbreaking technology, excellent service and

know-how. We thank Sagi and Ofer for their years of

dedicated leadership as we welcome Liam onto our

team.

Our current strategic plan is a response to the vagaries

of the adtech market. While public mistrust in this

industry due to fraud and foul play has negatively

affected performance and share price, we are

committed to bolstering the company to a successful

future and to maintaining our position as an industry

pioneer. Our plan consists of several prongs: reduce

operating expenses, consolidate the company around

core competencies, maintain activities in non-core

activities with promise and abandon side activities

that have exhibited low performance and have little

future prospects for profitability. At the same time, we

are committed to transparency and safety, excellent

customer care and investment in and development of

our data capabilities.

In response to market trends, we focused our core

activities on mobile and domain programmatic

advertising, abandoning activities that no longer

served our clients’ needs. To this end, as of July 2017,

we divested ourselves of our performance advertising

activities, as well as mtmy, the advertising agency that

served these platforms.

We united Mobfox and MyDSP to better serve the

mobile programmatic advertising market. Mobfox

and Team Internet in the domain arena are both

leading brands in their fields, which we will further

differentiate with superior technical offerings and

service. We continue to invest in development as

an important element of our company growth and

success.

Through the implementation of our strategic plan,

Matomy has transformed into a focused operation,

managing several independent and strong brands

that inform each other and can work together if and

when needed. This transformation has allowed us to

successfully streamline our corporate team - and is,

we believe, a natural and encouraging mark of

corporate maturity.

Two of the biggest markets for programmatic

advertising are in the US and Asia, both markets

where we are active. Our sales teams in the US have

succeeded in increasing our footprint on the continent

and we are continuing to make inroads here. We

have a team onsite in China, who have successfully

penetrated the Chinese market. Our senior

management team is committed to further developing

our US and Chinese partner and client portfolio. With

the impending regulatory environment in Europe

with regard to data usage, these markets that are not

affected are an optimum choice for us.

Today, our key strategic direction is in further

consolidating our core activities and enhancing our

technological leadership in the field. A key component

of this is our further development of our data

capabilities. Meanwhile we remain fully aware of the

risks and uncertainties facing our company both on

the international market and in terms of regulatory

changes. Data, when deployed efficiently, raises the

effectiveness of advertising and it will therefore

remain an important element in our toolbox as we

strive to add value to our stakeholders.

Our board and management team have worked

diligently this year and made some difficult and astute

choices, and our focused positioning has borne fruit,

as is reflected in the bottom line. I am pleased to

represent our work to you here.

HAREL BEIT-ONNon-Executive Chairman

Chairman’s Statement

2017 was a year of meeting

challenges, of change and

renewal at Matomy. This year’s

strategic report reflects results

of a well-implemented strategic

plan, developed with great

attention to the evolving market

and our company performance.

Serving as the supplier of choice for both publishers and

advertisers is our touchstone and also our motivation as we

continue to build the company’s future. The Board and Senior

Management announced a strategic plan in May and adherence

to it has proven fruitful.

Adtech is a constantly evolving field and to excel, we need

suitable leadership at the helm. We thank Ofer Druker for his

ten years of excellent stewardship of the company. As a pioneer

in this industry, his savvy leadership transformed us into a

public company with a recognized market presence. When Ofer

stepped down during the year, our own Sagi Niri, a finance and

HAREL BEIT-ONNon-Executive Chairman

30 April 2018

STRATEGICREPORT



OVERVIEW


CEO’s Statement

In 2017 we focused at Matomy on re-defining and enhancing our competitive advantages within a changing media landscape.

Although I arrived for the tail end of the current company transformation and focus, it is my privilege to present the results of the strategies that were put into place, while also introducing our plans for steering Matomy into the future, as we serve publishers and advertisers with excellence.

In May 2017, we defined a new strategic direction for the company following a successful review designed to increase shareholder profit. Identifying programmatic advertising as the overwhelming choice of both advertisers and publishers for delivering advertising, we defined our core activities as domain monetisation and mobile advertising, making a decision to concentrate on these areas. To further this effort, we sold off some of our non-core and less profitable activities such as our performance advertising activity, as well as mtmy, our advertising agency. We also undertook to purchase the remaining shares of Team Internet, our domain monetisation platform, and financed this acquisition in part by a successful bond offering which raised $30 million in early 2018.

We concurrently streamlined our operating costs in an effort to achieve greater operational excellence, and to reflect the new realities of the company. Corporate teams of Finance, Human Resources, Administration and Marketing were reduced, and the new lean teams that emerged were optimized for quality. In addition to the staff that were “acquired” along with the sale of the exited activities, the tech teams that had supported them were redundant and therefore let go. In all, our original staff of 422 was reduced by 36% to about 273 people by the end of the year.

Concentrating on Programmatic

With forecasts predicting that well over 70% of advertising would be sold programmatically, it was clear to us that our primary objective was strengthening these services. Our prior acquisition of MobFox and creation of myDSP positioned us perfectly to grab hold of this

opportunity. We positioned MyDSP as a platform from Mobfox, solidifying the offering and Mobfox brand. We strengthened domain monetisation and in-app advertising as our core activities by focusing on technological excellence.

We position ourselves as top tier providers who offer innovation and a better user experience. To support this, we continue to invest in R&D and indeed, 45% of our employees are R&D staff. Data fuels many of our features and services, so we continue to develop our capabilities in this arena. By growing our proprietary tools in AI and data management, we are able to improve the features we offer and better serve publishers and advertisers alike.

Our achievements this year include significantly deepening our ability to segment audiences, an important feature that differentiates us from our competition.

This year, we rolled out the ability to segment audiences by gender at scale, while also integrating platforms that enable using data for further segmentation and targeting audiences. One of the most inventive features introduced this year is the audience analytics on the publishers’ dashboard. It is a unique and important feature, raising the value and benefit of selling and buying advertising for both advertisers and publishers. Significantly, we also inaugurated a private marketplace (PMP) to enhance our partners’ buying capabilities through targeted segmentation at scale. Mobfox is now connected to over 175 demand side platforms in addition to myDSP and is used by over 40,000 apps across iOS and Android. In parallel, myDSP is connected to eight industry-leading supply side platforms in addition to Mobfox.

Among our added value services this year, is the direct connection with Factual and Adsquare. Through these partnerships, we are able to provide more effective geo-targeting which is invaluable to advertisers in their ability to generate results from their campaigns. This is yet

STRATEGICREPORT



OVERVIEW

LIAM GALINChief Executive Officer


of our clients and partners, enabling them to achieve better segmentation and reach more accurate audiences, without sacrificing end-user privacy and security.

To keep pace with the sometimes-vast changes that take place at great speed, we invest carefully at Matomy in technology and R&D to ensure product excellence and are dedicated to providing features and services that help advertisers and publishers reach and exceed their goals. We maintain a nimble, forward-thinking executive team and we take bold strides to succeed. We are excited about this year and continue to serve our partners and shareholders with passion.

another feature that gives our partners access to tools that can significantly improve their results.

Another area of focus this year was transparency. With the industry plagued by ad fraud, which harms and steals from both advertisers and publishers, we made a very bold decision to engage only with high-quality partners. This measure, which limited some of our potential revenue in the short term, has reinforced our company as trustworthy and as a company that fights ad fraud. This is a long-term investment, as evidenced by the fact that the industry has been plagued by lack of trust, resulting in an unstable year for many, while Mobfox revenues grew nicely.

Our Results

The year-end results for 2017 have indicated promise for the strategic direction we introduced in May. Team Internet, representing our domain monetisation interests marked a 66% growth in revenue, while Mobfox, our programmatic mobile in-app advertising arm, exhibited revenue growth of 20%. On a company-wide level, our EBITDA rose 16% this year. However, when excluding exited activities on a pro-forma non GAAP basis, the results rise even higher to 29%. We are encouraged by these numbers that add a vote of confidence to our direction.

A Look to the Future

Looking to the future, we intend to fortify our mobile in-app programmatic capabilities, by continuing to invest in technical innovations and by delivering superior customer service. We are dedicated to our positioning as a top tier provider that affords our partners and clients the tools they need to succeed at a minimum of time investment or difficulty, in a safe and trustworthy environment.

We also are investing in growing our data management capabilities, which will inform the services we are able to provide. Today, with partners in place, we are in an excellent position to harness the power of data for the benefit

LIAM GALIN

President & Chief Executive Officer

30 April 2018

STRATEGICREPORT



OVERVIEW


Superlative tools is what will differentiate our offering to our publishers and advertisers. Matomy brands are known for value and advanced features and we will continue to bring cutting edge features to market.

Programmatic advertising is efficient, cost-effective - and gets the advertiser in front of the right audience. The technology serves publishers desiring sophisticated means for taking full advantage of their assets and increasing revenue. With improved ability to segment audiences, advertisers justify increased ad spend, and with rules-based algorithms, publishers can reap premium prices for top content. According to Adweek, 96% of marketers are using programmatic platforms to purchase display ads. Matomy is at the forefront of programmatic advertising with state-of-the-art developments and trustworthy environments.

In-app mobile advertising is the fastest growing sector in mobile marketing according to BI Intelligence and estimated to grow to $7 Billion by 2020. Mobfox is primed to provide excellent service to this market with powerful data tools and cutting edge features.

Matomy is a premiere advertising technology firm, with holdings in critical industry areas of operation: programmatic mobile in-app advertising and domain monetisation, as well as email marketing and video advertising. We continue to develop vital tools and excellent value for both publishers and advertisers, solidifying our position as a top tier partner of choice.

Direct navigation traffic which fuels domain monetisation - has an estimated market size of US $1 billion per year, with a conversion-to-sale rate that is more than double than other options. Likewise, mobile traffic is growing steadily: according to Stone Temple, 55.79% of traffic comes from mobile, outstripping desktop access. As more than 85% of that mobile time is spent using apps (as per eMarketer), in app marketing is a huge market to explore. One worth $16 billion, to quote KPCB. We intend to take full advantage of these great opportunities with a strategic plan that is both detailed and focused.

Vision & GrowthStrategyFollowing the successful initial results of our new strategic focus, we have a clear direction moving forward and are perfectly poised for continued growth.

Technical Superiority Programmatic Platforms Mobile In-App Advertising

With a local team in the United States, we continue to focus on this promising market which consistently leads in terms of ad spend.

Team Internet serves the growing domain monetisation market and is one of the strongest players in this field.

We continue to grow our capabilities in actionable, direct and indirect data analysis and management to support our offering. With new partnerships and improved algorithms, we offer a rich and competitive service.

A mobile-first culture, Asia is a natural market for our services. We have exhibited growth in that market and have undertaken plans for expansion.

Online fraud has become one of the most serious threats our industry currently faces. Matomy is actively addressing this situation and helping partners take back control.

US Market Growth

Domain Monetisation Data Prowess

Asian Market Growth Transparency

STRATEGICREPORT



OVERVIEW


Product Improvements Drive Increased Use of Programmatic AdvertisingWith 5,000 advertising technology companies crowding

the market, becoming a market leader and maintaining

this position requires effort and investment. This past

year, we rolled out product improvements such as

greater segmentation abilities and more integrations

with third party providers, which have fueled our

current improved business results. With a focus on R&D,

we continue to develop technical tools that will maintain

our brands and their products as market leaders.

Currently developing improved data capabilities,

self-learning algorithms and more, we look forward to

creating the next big idea.

Matomy is strengthening our core competencies in

programmatic in order to continue to deepen the

services available.

To this end, we insist upon technological excellence and

innovation as well as putting a strong accent on service.

We are Strengthening Core Activities and Data Capabilities Market researchers suggest that by the end of 2019,

four out of every five advertising dollars, or 83.6%, will

be spent on programmatic advertising, for a total of

$45.72 billion dollars. We will maintain focus in this

direction, as designated by our May 2017 strategy

announcement.

Direct and indirect data analysis and management is

the backbone of programmatic platforms. Strong data

capabilities drive increased results with improved

segmentation. Since the regulatory environment

regarding data evolves rapidly, we are committed

to remaining in compliance as we improve our data

capabilities in order to best serve our partners.

Our core areas of operation of domain monetisation

and mobile in-app advertising are both data driven, and

served by the data offering we develop.

Matomy has carved a name for itself as a leader in the

domain monetisation arena. And for good reason: our

Team Internet is driven by industry leading technology

and a team with unparalleled domain experience. The

company includes two brands which work seamlessly

together to provide a complete offering: Parking Crew is

a domain parking platform which integrates seamlessly

with many third party applications. Tonic, the second

platform, is a traffic marketplace that allows users to

monetize traffic and target audiences with a variety of

ad types.

In-app advertising is an extremely powerful tool that

increases engagement among consumers and drives

both sales and advertising revenue streams. According

to Localytics, push notifications lead to an up to 88%

increase in user engagement and relevant messages

trigger four times more conversions. Understanding the

power of this tool, we intend to focus on giving both app

publishers and advertisers more opportunity to engage

their users.

We Will Offer a Trustworthy EnvironmentOne of the most important things we offer our partners

and clients is reputable results. While programmatic

advertising provides unparalleled opportunities for

publishers and advertisers, these platforms have

also been susceptible to fraud. eMarketer predicts

that advertisers will place even more emphasis on

brand safety and quality when choosing advertising

technology platforms.

Our response to this is to take control by investing in

internal and external controls and dedicating ourselves

to transparency and quality partners. This year, we

will increase our capabilities in fraud prevention and

detection.

We Will Increase Our US ActivityAs the country with the highest mobile spend in the

world, as well as the largest programmatic ad market by

far, the US is a natural choice for Matomy’s expanded efforts and on site presence. eMarketer predicts that by 2019,

four out of five dollars for digital display advertising will flow through programmatic means. And more than 80% of

those ads will go to mobile - rather than desktop. Our current team in the US offers a constructive bridge to the local

market that enables us to learn more about the needs of brands and other important developments. Reinforcing our

activities in the US, specifically for programmatic mobile advertising activity, will help us in deepen our ties to this

critical market and engaging with our potential audience.

We Will Develop Our Ties to the APAC Market Our local Chinese team has been instrumental in creating a presence in Asia. With a 96% penetration rate of mobile

usage as of 2016, China is a land of opportunity for our services. China is second only to the US in terms of ad spend,

yet the numbers are expanding exponentially at a rate greater than anywhere else in the world. China was projected

to spend over $31 billion in 2017, with that number rising to over $40 billion by the end of 2018, which is an increase

of 29.7% . The US ad spend increased 16% during the same period. We intend to continue to take advantage of these

opportunities and continue to develop our presence in China and Asia during the coming year.

Continue with Strategic Focus from May2017 has been a year of transition. We are proud of our nimble response to market behavior and will continue to react

powerfully when needed. We are continuing with our razor-sharp focus in our core areas of operation into 2018 and

look forward to promising results.

STRATEGICREPORT



OVERVIEW


Business & financial review The Company announced on May 8, 2017 a new strategic focus

on core activities. Team Internet (domain monetisation) and

Mobfox (programmatic in-app advertising), resulting in higher

revenue stability, gross margins and profitability. As a result,

Matomy’s adjusted EBITDA increased by 16% to $20.7 million

(FY2016: $17.7 million) and excluding the exited activities,

on a pro-forma basis, adjusted EBITDA rose 29%, resulting in

increased of cash generation.

More business and financial highlights include:

• Team Internet revenue increased 66% to $105.4 million (FY2016: $63.3 million) and Adjusted

EBITDA increased 65% to $24.5 million (FY2016: $14.8 million).

• Mobfox revenue increased by 20% to $50.6 million (FY2016: $42.1 million) and Adjusted

Gross Margin increased by 12% to 27.8% (FY2016: 24.8%). Adjusted EBITDA decreased

following significant investment in R&D and infrastructure to support the growth of this

activity.

• Matomy reduced the corporate team and significantly decreased operational overhead.

• R&D and technical employees now amount to about 45% of the staff overall, reflecting the

Company’s focus on proprietary technology and product development.

• The Company sold the non-core activities “Performance from Matomy” and “mtmy” in July

2017. As such, full 2017 results still represent these activities for the first six months.

• The Company announced the issuance of convertible bonds on 28 December 2017, which was

successfully completed in February 2018 and raised approximately $30 million in part to fund

the acquisition of the remaining ownership percentage of Team Internet.

RevenueDuring 2017, revenues of the core activities increased by $50.6 million, or 48%, to $156 million (FY2016: $105.4 million),

and provide the best indication for Matomy’s continued growth.

On a Group level, revenues in 2017 decreased by $31.5 million, or 11.4%, to $245.1 million (FY2016: $276.6 million),

however this number includes the declining revenues of the exited activities for the first half of 2017 and as noted above,

this does not provide a true picture of Matomy’s activities as of December 31, 2017. Excluding revenues from the exited

activities, which are not included in the reported results following the sale, revenues decreased by 4.6%, as a result of lower

scale of the remaining non-core activities.

Income statement (US dollars in thousands, except earnings per share data)

2017 2016

Revenues $ 245,056 $ 276,631

Cost of revenues 191,375 219,715

Gross profit 53,681 56,916

Operating expenses

Research and development 10,980 9,297

Selling and marketing 25,804 31,121

General and administrative 13,883 18,209

Impairment, net of change in fair value of contingent consideration 17,181 (425)

Restructuring costs 924 -

Gain from sale of activity (913) -

Total operating expenses 67,859 58,202

Operating loss (14,178) (1,286)

Financial expenses, net 2,536 2,057

Loss before taxes on income (16,714) (3,343)

Taxes on income (benefit) (2,145) 4,689

Loss before equity losses of affiliated companies (14,569) (8,032)

Gain on remeasurement to fair value and equity gains (equity losses) of affiliated companies, net

135 (73)

Net loss (14,434) (8,105)

Net income attributable to redeemable non-controlling interests in subsidiaries (1,466) (487)

Net income attributable to other non-controlling interests in subsidiary (23) -

Net loss attributable to Matomy Media Group Ltd. before accretion of redeemable non-controlling interest

$ (15,923) $ (8,592)

Basic and diluted loss per ordinary share $ (0.35) $ (0.13)

STRATEGICREPORT



OVERVIEW


Cost of revenues

$ millions, except as otherwise indicated 2017 2016

Media costs 168.0 198.3

Other cost of revenues 23.4 21.4

Cost of revenues 191.4 219.7

Gross margin (%) 21.9% 20.6%

Adjusted gross margin (non-GAAP) (%) 31.5% 28.3%

Cost of revenue for the Group decreased by $28.3 million, or 12.9%, to $191.4 million (78.1% of total revenues) for the year ended 31 December 2017 from $219.7 million (79.4% of total revenues) last year.

Other cost of revenue, which includes allocated costs, server expenses and amortisation of capitalised R&D and intangible assets, increased in part from higher server expenses on the fast growing mobile and domain monetisation activities.

Gross margin rose by 1.3% primarily as a result of the overall drop in cost of revenue.

Adjusted gross margin, which reflects media costs only, increased by 11.2%. This change was driven by significant improvements in margins and scale in core activities. In addition, exiting activities which had low margins and high operational costs also contributed to the improved margins.

Operating expenses

$ millions 2017 2016

Research and development 11.0 9.3

Sales and marketing 25.8 31.1

General and administrative 13.9 18.2

Total operating expenses 50.7 58.6

Total operating expenses as a percentage of revenues 20.7% 21.2%

Operating expenses decreased by $7.9 million, or 13.5%, to $50.7 million (FY2016: $58.6 million). Operating expenses as a percentage of revenues were 20.7% (FY2016: 21.2%).

The decrease in operating expenses is mainly attributable to the sale of exited activities and the new focus adopted during 2017 following this sale, including a reduced and more efficient corporate team. These actions led to substantially lower gen-eral, administrative, sales and marketing costs of $9.6 million in aggregate. The decrease in operating expenses was partially offset by increased R&D expenses of $1.7 million.

Research and development expenses increased by $1.7 million, or 18.1%, to $11.0 million (FY2016: $9.3 million), following

continued investment to strengthen our proprietary technological of-ferings within the core activities, as well as reduction in capitalization of expenses.

Sales and marketing expenses de-creased by 17.1% to $25.8 million (FY2016: $31.1 million). This decrease is mainly a result of the new focused strategy implemented in 2017 and a decreased amortisation expenses recorded in sales and marketing (re-duced in 2017 by $1.9 million).

General and administrative expenses decreased 23.8% to $13.9 million (FY2016: $18.2 million), due to contin-ued success in introducing efficiencies at the corporate level, and the stream-lining and reduction of overhead costs. This trend is aligned with the Compa-ny’s strategic focus announced in May 2017 and is expected to continue to show through 2018.

Financial expensesNet financial expenses increased by $0.4 million to $2.5 million for the year ended 31 December 2017 (FY2016: $2.1 million). The increase is primarily due to an increase in interest payments on credit facilities and foreign exchange rate fluctuations.

Taxes on incomeTaxes on income shifted to $2.1 million benefit for the year ended 31 December 2017 (12.8% of loss before taxes), compared to $4.7 million expense in FY2016 (-140.3%).

Matomy’s effective corporate tax rate of 12.8% in 2017 is mainly due to (1) reversal of deferred tax liability resulted from impairment of intangible assets, and (2) income from changes in fair value of contingent payment obligation related to acquisitions which are non-dedictable for tax purposes, off-set by (1) tax rate of 33% on Team Internet profit, and (2) record of full valuation allowances on current year

and carry forward losses in the parent company and most of its subsidiaries.

Matomy’s effective corporate tax rate in 2016 was negative 140.3% primarily due to valuation allowance totalling $4.3 million recorded on carry forward losses in both the parent company and several of its subsidiaries.

Matomy is subject to corporate tax on its income, principally in Israel, the United States and Germany. Matomy may also be subject to corporate tax on its income in other jurisdictions in which Matomy has operations.

Amortisation of intangible assetsAmortisation expenses amounted to $10.6 million for the year ended 31 December 2017, a decrease of $3.4 million from amortisation expenses of $14.0 million for the same period last year, primarily due to intangible assets that were already fully amortized in prior years, as well as impairment charge on non-core intangible assets recorded in H1 2017.

Net income / (loss)Net loss increased by $6.3 million to a $14.4 million net loss for the year ended 31 December 2017 (FY2016: $8.1 million net loss), primarily due to the strategic changes in 2017, which led to an increase in “Exceptional items” as detailed below.

Net loss attributable to Matomy Media Group shareholders was $1.5 million lower than Group net loss (FY2016: $0.5 million lower). This difference was primarily due to improved performance and revenues of Team Internet, resulting in an increased net income attributed to redeemable non-controlling interest on account of the put options held by Team Internet’s minority shareholder.

Exceptional itemsMatomy views the following items, which were recorded in profit and loss, either as expense or income, as exceptional items which are material to the financial statements and therefore were excluded from non-GAAP measures:

• Impairments of intangible assets, goodwill and capitalised R&D amounting to $14.3 million in H1 and $12.9 million in H2, in total for the full year $27.2 million, as detailed herein below.

• Earnout adjustments income of $5.5 million in H1 and $4.5 million in H2, in total for the full year $10.0 million, as detailed herein below.

• Gain from sale of an activity of $0.9 million in 2017.

• Costs relating to the exited activities amounting to $0.9 million in 2017.

• Tax effect of exceptional items amounting to ($6.3M) million in 2017.

The impairment charges were attributed mostly to intangible assets and goodwill related to the non-core activity, primarily due to consolidation of certain business units, and adjustments to current market terms including adequacy of revenues generated by the relevant technological platforms.

These changes in the activity of the non-core assets also led the Company to reevaluate the contingent liability related to acquisitions. This resulted in a downward adjustment to the payment due on account of future earnouts mainly in connection with Optimatic, and the Company recorded an income of $10 million in 2017.

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OVERVIEW


* Represents amounts less than $ 0.1 million.

Liquidity and cash flows The following table sets out selected cash flow information for the Group for the years ended 31 December 2017 and 2016

(A) Net cash provided by / used in operating activitiesMatomy’s net cash provided by / used in operating activities increased by $17.7 million to a $17.5 million inflow for the year ended 31 December 2017 (FY2016: $0.2 million outflow). In 2017, net cash provided by operating activities consisted of a net loss of $14.4 million offset by $6.5 million relating to net changes in working capital, and $25.4 million relating to non-cash expenses. Non-cash expenses were primarily impairment of intangible assets, capitalized R&D and goodwill of $27.1 million, depreciation and amortisation of $14.4 million and stock based compensation expense of $1.4 million, off-set by earnout adjustments income of $10.0 million and decrease in deferred tax assets of $7.8 million.

In comparison, for the year ended 31 December 2016, Matomy’s net cash provided by operating activities consisted of $8.1 million in net loss and $9.6 million relating to net changes in working capital, off-set by $17.5 million relating to non-cash expenses. Non cash expenses were primarily depreciation and amortisation of $16.5 million, non-cash stock based compensation expense of $1.9 million, less decreases in deferred taxes of $1.0 million.

Net changes in working capital in 2017 were mainly driven by a decrease of $22.0 million in trade receivables, offset by the effects of decrease in trade payables ($14.8 million). The decrease in both trade receivables and trade payables was mainly attributable to the sale of the exited activity and lower scale of activities in the remaining non-core activities.

(B) Net cash provided by / used in investing activitiesNet cash provided by / used in investing activities increased by $9.1 million to $2.2 million inflow for the year ended 31 December 2017 (FY2016: $6.9 million outflow). In 2017, net cash provided by investing activities primarily included a $5.6 million from sale of non-core activites, $1.8 million from sale of investment in affiliated company, off-set by $3.9 million capitalised investment in R&D and $1.0 million investment in domains.For the year ended 31 December 2016, net cash used in investing activities included a $5.1 million capitalised investment in R&D and a $1.6 million investment in property and equipment.

$ millions 2017 2016

Net cash provided by / used in operating activities 17.5 (0.2)

Net cash provided by / used in investing activities 2.2 (6.9)

Net cash provided by / used in financing activities (12.6) 1.5

Increase / decrease in cash and cash equivalents 7.1 (5.6)

Cash and cash equivalents at beginning of period

21.7 27.3

Cash and cash equivalents at end of period 28.8 21.7

(C) Net cash used in / provided by financing activitiesNet cash used in / provided by financing activities decreased by $14.1 million to a $12.6 million outflow for the year ended 31 December 2017 (FY2016: $1.5 million inflow).

In 2017, net cash used in financing activities related primarily to a $17.7 total payments to non-controlling interests and earnout payments, less $4.6 million net increase in outstanding term loans and utilization of credit lines and $0.5 million of proceeds from the exercise of stock based compensation during the year.

In 2016, net cash provided by financing activities related primarily to a $2.0 million net increase in outstanding term loans and overdrafts and $2.4 million of proceeds from option exercises during the year, less $3.0 million total payments to non-controlling interests and earnout payments.

As of 31 December 2017, Matomy had $8.1 million in term loans. Of those, $5.1 million are due within one year. Matomy also has a revolving credit line of $12.7 million.

Notes to financial statmentsGoodwillGoodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired.

Matomy’s goodwill was created mainly through the 2013, 2014 and 2015 acquisitions.

Matomy has three reporting units: Domain Monetisation, Mobile (“Mobfox”), and non-core activities. The Company performs an annual impairment test during the fourth quarter of each fiscal year, or more frequently if indicators of potential impairment exist, to determine whether the net book value of each reporting unit exceeds its estimated fair value. The Company recorded goodwill impairment loss of $9.0 million during the year 2017 is attributable to the non-core reporting unit. During the year ended 31 December 2016, no impairment losses were identified.

SegmentsOur chief operating decision-maker is our Chief Executive Officer. On a monthly basis, the CEO reviews revenue and adjusted EBITDA at Group level, as well as revenue at the level of media channels, for the purpose of allocating resources and evaluating financial performance.

As a result, Matomy operates in a single reportable segment as a provider of digital advertising services.

Liability to non-controlling interestsDuring the fourth quarter of 2016, the non-controlling interest of Team Internet (“Minority Holder”), exercised their put option and sold 10% of Team Internet to the Company. The payment of $10.4 million was made in January 2017. Following the exercise of the put option, the Company holds 80% of Team Internet shares.

On 28 December 2017, Matomy entered into an agreement with the Minority Holder relating to the exercise of the second

and third sale exit option. The total consideration for the second sale exit was due no later than 15 March 2018 and has

been completed. The consideration for the third sale exit option is due no later than 30 November 2018 according to the

formula set out in the Team Internet Framework Agreement, with additional 10% premium. The parties also agreed that the

Minority Holder will be entitled to an additional consideration of 8% of the net earnings of Team Internet during the period

beginning on 1 September 2018 and ending on 31 December 2018 and in the subsequent financial year beginning on 1

January and ending on 31 December 2019. In addition, a one-off bonus of $1.0 million will be paid to the Minority Holder for

the extension of the cooperation between Team Internet and its unrelated search engine provider beyond 31 July 2019. As

of 31 December 2017 the Company recorded a liability of $41.5 million for the expected consideration based on fair value

according to its best estimates. As of 31 December 2017 the Company believes that it is premature to estimate the expected

STRATEGICREPORT



OVERVIEW


payment for the search engine renewal bonus, and therefore no provision was recorded.

During H1 Matomy recorded an accretion of redeemable non controlling interest of $7.9 million in H1 and $9.2 million in H2,

in total for the full year 2017 of $17.1 million.

Sale of exited activitiesIn 2017 the Company entered into an agreement for the sale of its intangible assets and transfer of all employees related

to its exited activities, for a total consideration of up to $10.9 million, comprised of $5.6 million in cash and a contingent

consideration up to $5.2 million based on future business performance.

The sale resulted in a gain of $913 thousand, which is included in operating results for the year ended 31 December 2017.

Following the consummation of this transaction, the Company has exited from the legacy web display, social and search and

virtual currency media channels, which are outside the Company’s focus. Following the sale, these media channels ceased to

be part of the Company’s activity.

The Company elected to recognize the future proceeds when the contingency is resolved, and therefore the contingent

consideration amount was not accounted for as part of the gain.

Loss per shareMatomy’s basic loss per share increased by $0.22, or 169%, to a loss per share of $0.35 for the year ended 31 Decem-

ber 2017 (FY2016: $0.13 loss per share). This change was influenced primarily by the decrease in after-tax profit,

for the reasons noted above. In addition, there was a 2.8% increase in the weighted average number of outstanding

shares mainly due to exercise of share-based incentives in 2017.

Treasury sharesAs of 31 December 2017, Matomy has a total of 10,970,111 treasury shares, of which, 1,211,236 shares are held by

Team Internet. As of December 31, 2017 Team Internet’s Minority Holder is entitled to an 80% share of the gains

derived from these shares, which Matomy classifies as a liability to non-controlling interest.

Financial Obligations and CovenantsMatomy’s financial obligations and commitments as at 31 December 2017 were as follows:

$ million Due within 1 year Due >1 year Total

Bank loans 5.1 3.0 8.1

Operating lease obligations, net of sublease rental

1.3 2.1 3.4

Total 6.4 5.1 11.5

Details of these obligations may be found in note 8 and 9 in the financial statements.

Financial reportingThis financial information has been prepared under US GAAP principles and in accordance with Matomy’s accounting policies.

The Company changed its accounting policy regarding the presentation of the adjustment to the net income attributable to it as a result of accretion of redeemable non-controlling interest. For further information please refer to note 2 of the 2017 Financial Statements.

Forward-looking statementsCertain statements in this full-year report are forward-looking. Although the Group believes that the expectations

reflected in these forward looking statements are reasonable, we can give no assurance that these expectations will

be fulfilled. Because these statements contain risks and uncertainties, actual results may differ materially from those

expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-look-

ing statements, whether as a result of new information, future events or otherwise.

Directors’ responsibilityThe Directors confirm that to the best of their knowledge the condensed set of final audited financial statements,

which has been prepared in accordance with US GAAP principles, gives a true and fair view of the assets, liabilities,

financial position and profit of the undertakings included in the consolidation as a whole as required by DTR 4.1.

LIAM GALIN

President and Chief Executive Officer

KEREN FARAG

Chief Financial Officer

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OVERVIEW

Reconciliation of GAAP measures to non-GAAP measures

The following table presents a reconciliation of adjusted gross profit to gross profit and to revenues, the most directly

comparable financial measures calculated in accordance with US GAAP, for the periods indicated:


2017 2016

Revenues 245.1 276.6

Direct media costs (168.0) (198.3)

Adjusted gross profit 77.1 78.3

Adjusted gross margin (%) 31.5% 28.3%

Other cost of revenues (23.4) (21.4)

Gross profit 53.7 56.9


The following table presents a reconciliation of adjusted EBITDA to net income, the most directly comparable

financial measure calculated in accordance with US GAAP, for the periods indicated:

The following table presents a reconciliation of adjusted net loss to net loss, the most directly comparable financial

measure calculated in accordance with US GAAP, for the periods indicated:


2017 2016

Net loss (14.4) (8.1)

Taxes on income (benefit) (2.1) 4.7

Financial expenses, net 2.5 2.1

Gain on remeasurement to fair value and equity gains(equity losses) of affiliated companies, net (0.1) 0.1

Depreciation and amortisation 14.4 16.5

Share-based compensation (cash and non-cash) expenses 3.2 2.4

Exceptional items 17.2 0

Adjusted EBITDA 20.7 17.7


2017 2016

$ millionNet loss (14.4) (8.1)

Exceptional items, net of tax effect 10.9 0

Share-based compensation (cash and non-cash), net of tax effect 3.1 2.5

Adjusted net loss (0.4) (5.6)

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OVERVIEW


Principal Risks & UncertaintiesGoing concern The Directors confirm that, after making an assessment, they have reasonable expectation that the

Group has adequate resources to meet its obligations for the foreseeable future. The Directors took into

consideration, among others, the fact that in February 2018, the Company completed a public offering in

Israel of Convertible Bonds (the “Bonds”). Through the issuance of the Bond, the Company raised a total

gross consideration of ILS 103 million (approximately $29.9 million) issuing a total of 101,000 units of

Bonds, which bear a coupon of 5.5% per annum, payable semi-annually on June 30 and December 31 of

each of the years 2018 to 2021 (inclusive). The principal of the Bonds, denominated in ILS, will be repaid in

two equal annual instalments commencing on December 2020. The Bonds will be convertible into ordinary

shares of the Company, at the discretion of the holders, up to ten (10) days prior to the final redemption

date (December 21, 2021). The Company may redeem the Bonds upon delisting of the Bonds from the

TASE, subject to certain conditions. In addition, the Company may redeem the Bonds or any part thereof at

its discretion after 21 December 2021, subject to certain conditions.

Principal risksThe Directors assess and monitor the key risks of the business on an ongoing basis. The principal risks and

uncertainties that could have a material effect on the Group’s performance are set out in detail in the section entitled

“Risk Factors” of the Group’s IPO prospectus (the “Prospectus”) dated 9 July 2014 as updated below. These include,

among other things, the following:

• Certain internet and technology companies may intentionally or unintentionally adversely affect Matomy’s

operations, mainly, due to announced or unannounced changes and restrictions by such companies

• The delivery of digital ads and the recording of the performance of digital ads are subject to complex

regulations, legal requirements and industry standards

• Matomy’s revenue and operating results are highly dependent on the overall demandfor advertising. Factors

that affect the amount of advertising spending, such as economic downturns, particularly in the fourth quarter,

can make it difficult to predict our revenue and could adversely affect our business

• Seasonal fluctuations in digital advertising activity, which may historically have been less apparent due to our

historical core activities and growth, could adversely affect our cash flows and operating results

• In order to meet our growth objectives, we will need to rely upon our ability to innovate, the continued adoption of

our solution by buyers and sellers for higher value advertising inventory, the extension of the reach of our solution

into evolving digital media, and growth into new geographic markets

• Matomy operates in an intensely competitive market that includes companies that have greater financial, technical

and marketing resources than we do

• The digital advertising industry is highly competitive and fragmented and currently experiencing consolidation,

resulting in increasing competition

• In order to meet our growth objectives, we may need to rely on our ability to raise debt or utilize credit lines, which

may not be sufficiently available to meet our ongoing financial needs

• Matomy is dependent on relationships with certain third parties with significant market positions

• Matomy relies on the continued compatibility of its technological platforms with third-party operating systems,

software and content distribution channels, as well as newly-acquired systems.

• Matomy may be subject to third-party claims brought against it

• Matomy has historically derived the majority of its revenues from customers that use its solutions for display

marketing campaigns which are now rapidly declining

• A key part of Matomy’s strategy relates to acquisitions and the ability to effectively finance, integrate and manage

them

• The digital advertising industry remains susceptible to fraud

• Matomy is an Israeli-domiciled company and, as such, the rights and obligations of shareholders are governed by

Israeli law and differ in some respects from English law

• As a result of the announcement of Brexit, the British government has begun negotiating the terms of the U.K.’s

future relationship with the E.U. Although it is unknown what those terms will be, it is possible that these changes

may affect our operations and financial results

• If Matomy fails to comply with the terms or covenants of its debt obligations, our financial position may be adversely

affected

The tables below summarise, in the opinion of the Board, the principal material financial and operational risks to

Matomy and how it seeks to mitigate those risks in the day-to-day running of the business. Matomy utilises a formal

risk identification and management process designed to ensure that it properly identifies, evaluates and mitigates

such risks. Matomy’s Audit Committee and Board have joint responsibility for Matomy’s risk management process

and review its effectiveness annually. On a day-to-day basis, the Senior Management team is responsible for providing

leadership in the management of risk and ensuring that it is integrated as appropriate into Matomy’s business

processes and activities. In common with other organisations, Matomy is affected by a number of risks, not all of

which are within its control. Some risks, such as those around digital media and technologies, are likely to affect the

performance of digital advertising businesses generally, whilst others are particular to Matomy’s operations.

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OVERVIEW


Certain Internet and technology companies that operate platforms and systems on which Matomy relies to execute its customers’ digital marketing campaigns may make changes to their policies or systems that have an intentional or unintentional adverse effect on Matomy’s operations. Because of such companies’ significant market positions, any such changes may materially disrupt Matomy’s ability to deliver targeted ads and record performance metrics on certain media channels or operate in certain industry verticals, thus causing Matomy to lose significant revenues and be materially limited in the amount of data it is able to collect and use and, consequently, negatively affect its overall customer offering. Additionally, continual changes to how consumers engage and interact with digital advertising, particularly on mobile and tablet devices, may require Matomy adequately support and continually adjust its business model to adequately support its customers’ digital and performance-based advertising goals in line with consumers’ media consumption habits.

Matomy constantly monitors changes in technologies, user behaviour and technological trends which could affect (positively or negatively) the sustainability, usability and economic viability of its products and services. It actively deploys available product, development and other resources to minimize any adverse effect that may result. Matomy also continues to invest in enhancing its proprietary technology platforms, as well as in technologies support business intelligence, programmatic media buying, to reduce its dependency on third-party technologies and platforms.

Dependency on Internet and technology companies; macrobusiness dynamics and user behaviour

Macro Risks

Risk area Potential impact Mitigation

Although geopolitical, economic and military factors relating to Matomy’s domicile and operations in Israel and listing in the UK are out of Management’s control, the Group closely monitors the ongoing security situation in the Middle East, both to ensure the safety of its employees and partners, and to ensure the continuity of its operations. The Group has made significant progress in recent years in diversifying its business operations and has established particularly strong regional bases of operation in USA, Europe and APAC. In addition, less than 1% of the Group’s global revenues come from Israeli-based companies or media partners; therefore, it is unlikely that any adverse security or geopolitical situation within Israel would have a materially adverse effect on the Group’s long-term financial or operational stability.

Matomy is incorporated under Israeli law, and its principal executive offices are located in Israel. In addition, political, economic and military conditions in Israel directly and indirectly affect Matomy’s business. Matomy’s commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. In addition, as a result of the announcement of Brexit, the British government has begun negotiating the terms of the U.K.’s future relationship with the E.U. Although it is unknown what those terms will be, it is possible that these changes may affect our operations and financial results.

Geopolitical,

economic and other

risks relating to

Matomy’s domicile

and operations in

Israel and its listing

in the UK

Macro Risks


Matomy actively monitors laws and regulations applicable to it and its customers, especially as it expands into new territories. Matomy invests in ensuring compliance throughout all of its operations and continues to implement appropriate compliance programmers. As Matomy’s businesses expand, the costs of compliance may grow; however, those costs are kept in close check by a prudent, proportionate risk-based approach to compliance.

Matomy has been working with an external advisor and is in the final stages of completing its General Data Protection Regulation-related work as a data processor.

The delivery of digital ads and the recording of the performance of digital ads are subject to complex regulations, legal requirements and industry standards, including with respect to data collection, privacy, fraud, transparency, viewability and overall ad quality. Legal requirements and industry standards may adversely affect Matomy’s current operations and/or require Matomy to make changes to the way in which it operates. The regulations, legal requirements and industry standards vary by jurisdiction of operation, and are subject to continuous change, and compliance with such regulations and other legal requirements may be burdensome and costly.

In particular, the General Data Protection Regulation (GDPR), coming into application in the European Union (EU) on May 25, 2018, will apply to part our activities relating to products and services that we offer to EU users. The GDPR creates a range of new compliance obligations, which could cause us to change our business practices with respect to the EU, including a risk of being subject to financial penalties for noncompliance.

Regulatory change and the costs of compliance

Macro Risks


Macro Risks


Matomy’s revenue and operating results are highly dependent on the overall demand for advertising. Factors that affect the amount of advertising spending, such as economic downturns and seasonality, particularly in the fourth quarter, can make it difficult to predict our revenue and could adversely affect our business.

Matomy continually invests and makes huge efforts to provide best in class services and solutions in order to establish loyal and long lasting commercial relations with its advertisers and media sources.

Macro-economics vs. revenue and geographic diversity

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OVERVIEW


As Matomy transitions and becomes more focused on core activities of programmatic mobile, video and domain monetisation, Matomy’s revenue tend to be seasonal in nature, with the third and fourth quarters of each calendar year historically representing the largest percentage of our total revenue for the year and the first quarter of each calendar year historically representing the lowest percentage of our total revenue for the year. This combination generally results in lower revenue and gross margins for us during the first quarter of each calendar year. Our operating cash flows could also fluctuate materially from period to period as a result of these seasonal fluctuations.

The digital advertising market is rapidly evolving, complex and fragmented, and is currently experiencing consolidation, resulting in increasing competition. Existing and potential competitors may have significantly more financial, technical, marketing and other resources than Matomy has, be able to devote greater resources to the development, promotion, sale and support of their products and services, have more extensive customer and digital media source relationships than Matomy has, and may have longer operating histories and greater name recognition than Matomy has. As a result, these current and potential competitors may be better able to respond quickly to new technologies, develop deeper customer relationships or offer services at lower prices. This, in turn, may affect Matomy’s ability to retain existing customers, attract new customers, obtain competitive pricing from its digital media sources or increase its sales and marketing budget.

Matomy continually invests and makes huge efforts to provide best in class services and solutions in order to establish loyal and long lasting commercial relations with its advertisers and media sources.

Matomy continually evaluates the state of the digital advertising market and makes appropriate and proportionate adjustments to its business model, products and services to align the Group’s business with the ongoing needs of its customers and media partners. Matomy’s staff continually scans the digital advertising market for potential M&A and partnership opportunities, in addition to its Senior Management serving in a similar capacity within their respective areas of operation and expertise.

Matomy revenue tends to be seasonal in nature

Ongoing fragmentation and subsequent consolidation within the digital advertising market

Group Risks

Group Risks

Risk area

Risk area

Potential impact

Potential impact

Mitigation

Mitigation

Matomy’s business is naturally reliant on its technology and operational functions to support and develop its platforms, systems and infrastructure to meet the needs of the Group’s businesses. At any given time Matomy Undertakes a number of strategically significant development activities, and failure or delay in delivering them could have an adverse effect on the Group’s results or prospects. Some of these activities are complex, cutting-edge and require substantial innovation. Matomy is also working continuously to integrate its multiple organic and acquired platforms, technologies and operations so to derive maximum value and efficiency from its assets. Some of these integrations are operationally and technologically complex and all change is inevitably accompanied by risk; if not executed successfully or on time scales anticipated, Matomy may fail to realise the full potential value of, and synergies between, its constituent parts and this may affect its economic performance.

Matomy devotes significant management time and resources to the identification and mitigation of risks relating to its technology and operations which are key to its businesses.

Reliance on key technologies and operations, integrations and development

Group Risks


To meet our growth objectives, we will need to rely upon our ability to innovate, the continued adoption of our solution by buyers and sellers for higher value advertising inventory, the extension of the reach of our solution into evolving digital media, and growth into new geographic markets.

Matomy devotes significant management time and resources to the identification and mitigation of risks relating to its technology and operations which are key to its businesses. It has significant experience in these matters and Management regard the technological and operational risks faced by the Group.

Failure to adapt and respond effectively to rapidly changing technology and client needs, our solutions may become less competitive or obsolete

Group Risks


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OVERVIEW


Matomy’s credit facility and debt instruments requires Matomy, to comply with various covenants that limit our ability to, among other things: (i) dispose of assets; (ii) complete mergers or acquisitions; (iii) incur indebtedness; (iv) encumber assets; and (v) pay dividends or make other distributions to holders of our share capital; These restrictions could inhibit Maotmy’s ability to pursue our business strategies. If Matomy defaults, and such event of default is not cured or waived, the lenders could terminate commitments to lend and cause all amounts outstanding with respect to the debt to be due and payable immediately, which in turn could result in cross defaults under other debt instruments. Matomy’s assets and cash flow may not be sufficient to fully repay borrowings under all of our outstanding debt instruments if some or all of these instruments are accelerated upon a default. Matomy may incur additional indebtedness in the future. The debt instruments governing such indebtedness could contain provisions that are as, or more, restrictive than our existing debt instruments. If Matomy were unable to repay, refinance or restructure our indebtedness when payment is due, the lenders could proceed against the collateral granted to them to secure such indebtedness or force us into bankruptcy or liquidation.

Matomy devotes significant management time and resources to ensure ongoimg compliance with the terms or covenants of its debt obligations

Matomy has a robust internal policies and procedures relating to dealing with claims brought by third parties against it, its customers or its digital media sources. Matomy continues to invest in legal and compliance resources in all the jurisdictions relevant to its business to ensure that it acts in accordance with applicable legal standards.

Compliance with the terms or covenants of its debt obligations, our financial position may be adversely affected

Matomy may be subject to third-party claims brought against it

Matomy may be exposed to claims brought by third parties against it, its customers or its digital media sources. Such claims may allege, for example, that the digital media on which its customers’ marketing and advertising campaigns appear, or the content contained in such campaigns, infringes, and/or helps to facilitate the infringement of, the IP or other rights of third parties, are false, deceptive, misleading or offensive, or that its customers’ products are defective or harmful.

Group Risks

Group Risks

Risk area

Risk area

Potential impact

Potential impact

Mitigation

Mitigation

As part of our business strategy, we have in the past acquired, and may in the future acquire, companies, technologies and solutions that we believe complement our business. Acquisitions involve numerous risks, any of which could harm our business, including: (i) difficulties in integrating the technologies, solutions, operations, existing contracts and personnel of a target company; (ii) difficulties in supporting and transitioning clients, if any, of a target company; (iii) diversion of financial and management resources from existing operations or alternative acquisition opportunities; (iv) failure to realize the anticipated benefits or synergies of a transaction;(v) failure to identify all of the problems, liabilities or other shortcomings or challenges of an acquired company, technology, or solution, including issues related to intellectual property, solution quality or architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or customer issues; (v) risks of entering new markets in which we have limited or no experience; (vi) potential loss of key employees, brand advertisers and publishers from either our current business or a target company’s business; (vii) inability to generate sufficient revenue to offset acquisition costs; and (viii) possible write-offs or impairment charges relating to acquired businesses.

Matomy is accumulating significant M&A experience in the sector in which it operates and continues to make material resources available to the team responsible for M&A to ensure that opportunities are explored and evaluated appropriately. In addition, Matomy has established a robust due diligence process, ensuring both Senior Management and the Board have appropriate levels of information regarding M&A targets to make an informed and prudent decision regarding any M&A activity.

A key part of Matomy’s strategy relates to acquisitions and the ability to effectively finance, integrate and manage them

Group Risks


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OVERVIEW


Group Risks


Our business relies on effectively and efficiently delivering digital ad campaigns. We have in the past, and may in the future, be subject to fraudulent and malicious activities. It may be difficult to detect fraudulent or malicious activity because we do not own content and rely in part on our publisher partners for controls with respect to such activity. If fraudulent or other malicious activity is perpetrated by others, and we fail to detect or prevent it, the affected advertisers may experience or perceive a reduced return on their investment and our reputation may be harmed. High levels of fraudulent or malicious activity could lead to dissatisfaction with our solutions, refusals to pay, refund demands or withdrawal of future business. If we fail to detect fraud or other actions that reduce the performance of our video ad campaigns, we could lose the confidence of our advertisers or agencies, which could cause our business to suffer.

Matomy continually monitors and implements the leading tools for fraud detection combined with internal processes and procedures which are meant to mitigate the risks relating to undetected fraudulent activity.

The digital advertising industry remains susceptible to fraud

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The Board considers that the management of safety, health, environmental, social and ethical matters forms a

key element of effective corporate governance which in turn supports the strategy, long-term performance and

sustainability of the business. Matomy’s Chief Executive Officer and Chief Financial Officer are jointly responsible for

overall responsibility for sustainability within the Group.

Communities and charitiesMatomy has had a proactive communities and charities initiative since its foundation. This activity continues to grow

and evolve in its offices around the world. Some of the registered charities supported in 2017 include:

• ADI - Association Duchenne Israel working for a cure for this common and fatal degenerative muscle disease;

• Kesher, dedicated to improving the quality of life for families of individuals with special needs;

• Shiur Acher, which promotes equality of opportunity and encourages public involvement in the educational system;

• Educating for Excellence, which strives to reduce social gaps and create equal opportunities for children with

potential for excellence; and

• Jewish National Fund, working to preserve Israel’s natural and cultural heritage.

Matomy’s community relations activities are managed by each of its branch offces, with oversight for community

relations residing within the Group’s global headquarters in Israel. By allowing branch offices to coordinate specific

community relations and charitable activities within their home markets, Matomy is better able to harness the energy

and enthusiasm of its employees to benefit the communities in which it operates.

EnvironmentEach of Matomy’s branch offices has established environmental plans that help minimize Matomy’s environmental

footprint, such as paper, plastics and aluminium recycling and bottle redemption service whereby Matomy donates

funds received from bottle tax refund to local charities. This plan is managed by the office administrator and/or Senior

Manager of each branch office, along with a volunteer group of employees.

Greenhouse gas emissions

This section includes our mandatory reporting of greenhouse gas emissions. The methodology used to

calculate our emissions is based on the GHG Protocol Corporate Standard. Emissions reported correspond with our

financial year. Matomy leases all of its office space and data centres; therefore, only emissions from

Corporate Social Responsibility Matomy continues to build upon its long history of giving back to the communities in which it operates, whilst ensuring it provides enriching and positive experiences to its employees and key shareholders.

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those properties for which Matomy is responsible for are included in this report. Emissions are predominantly from

gas combustion and electricity used at our offices and data centres. In order to express our annual emissions in

relation to a quantifiable factor associated with our activities, we have used revenue as our intensity ratio as this is a

relevant indication of our growth and is aligned with our business strategy.

Employee communications and involvementMatomy actively encourages employee involvement and consultation and places considerable emphasis on

keeping its employees informed of the Group’s activities via formal business performance updates, regular

update briefngs, regular team meetings, and the circulation to employees of relevant information including

corporate announcements. This also helps to achieve a common awareness amongst employees of the fnancial

and economic factors affecting the performance of the Group. Matomy has an established employee forum

through which nominated representatives ensure that employees’ views are taken into account regarding issues

that are likely to affect them.

Additionally, Matomy has Human Resources representatives in several of its worldwide offices, including a

central HR team at its global headquarters in Israel. This group of HR employees works collaboratively to ensure

that Matomy’s employment, health and safety policies are both uniform and standard whilst also meeting the

regulatory and legal requirements for each government jurisdiction in which a specific branch office operates.

Equal opportunities and human rightsMatomy’s policy is always to ensure that all persons are treated fairly irrespective of their age, race (including

colour, nationality, ethnic or national origins), sexual orientation, disability, gender including gender

reassignment, religious beliefs or political opinion, marital and physical or mental health status or any other

factors including pregnancy and maternity. The Group endeavours to provide those who have physical or mental

disabilities with equal opportunities in the application and recruitment process, and specific assistance and

arrangements (including training, career development and promotion arrangements) to enable them to

work for us wherever and whenever this is reasonably practicable. Matomy recognises the value of having a

diverse workplace, particularly with respect to gender diversity.

Health and safetyMatomy is committed to providing a consistently safe and effective working environment for all staff, including

contractors, customers and members of the public. In doing so it will, as a minimum, comply with local health and

For period from January 2017 to 31 December 2017

17.9

547.3

2.38

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safety legislation, but will exceed those requirements should it be appropriate to do so. Matomy recognises the

importance of health and safety and the positive benefits to the Group. Matomy has a health and safety

policy which is communicated to all employees through a health and safety handbook, which is regularly

reviewed and updated. Overall, Group health and safety is the responsibility of the Chief Financial Officer. Each

member of Matomy’s Senior Management team is responsible for giving appropriate consideration to the health

and safety implications arising out of decisions or proposals made within the remit of their respective areas

of corporate responsibility. For subsidiary companies, health and safety is the responsibility of the Managing

Directors and/or branch office Senior Managers who will establish appropriate and effective

systems and arrangements to ensure compliance and to achieve the corporate objectives.

All employees are expected to exercise personal responsibility in preventing injury to themselves

and others and to cooperate with Management in complying with health and safety legislation.

Supporting studentsAs a global technologoy company, much of Matomy’s success relies on cultivating a strong group of ambitious

junior employees who are well trained in the skills necessary to thrive in the advertising technology

industry. To build links between Matomy and local schools and universities, work experience and

placements are offered to a number of students. In doing so, Matomy strives to make work placements

positive, challenging and relevant to participants’ current studies and their future job prospects. Students

who participate in Matomy’s work experiences and placements programme are often hired back as

full-time employees upon completion of their studies.

Business ethicsMatomy has formal ethics and anti-bribery policies which incorporate the Group’s key principles and standards

governing business conduct towards its key stakeholder groups. Matomy believes it should treat all of these

groups with honesty and integrity.


Corporate Governance3

53 Board of Directors

58 Directors’ Report

64 Corporate Governance Report

68 Audit Committee Report

76 Remuneration Policy

for Executive Directors &

Senior Managers

78 Policy for Executive

Directors & Senior Executives

89 Directors’

Responsibilities Statement


Audit

Committee

Nadav Zohar (Chairman)

Harel Locker

Nir Tarlovsky

Harel Locker(Chairman)

Nadav Zohar

Amir Efrati

Harel Beit-On (Chairman)

Nadav Zohar

Sagi Niri

Ido Barash

Remuneration

Committee

Nomination

Committee

Senior Management Team

Company

Secretary

• President & CEO

• Chief Financial Officer

• Managing Director, Mobfox

• CEO, Team Internet

• CEO, Optimatic

• VP Strategic Development

& General Counsel

The Board has delegated certain responsibilities to committees

Biography

Year Appointed

Committee Membership(s)

External Appointments

Recent Developments

Board of DirectorsOur business is managed by our Board of Directors. Biographical details of the Directors and Senior Management as of 30 April 2018 are as follows.

Name

Title

2015

Rishad is Chairman of The Tobaccowala Foundation and board member of the Wharton Future of Advertising Project

Harel Beit- is a co-founder of the Viola Group, an Israeli technology orientated private equity investment group and a shareholder of Matomy. He is currently Chairman of the TASE-listed B. Gaon Holdings Ltd, an holding company focused on the water and agricultural technology sectors, and serves as an active board member of a number of portfolio companies of the Viola Group. Previously, he held a number of roles, including Chief Executive Officer, President and Chairman, at the previously NASDAQ-listed Tecnomatix, a leading software provider, from 1985 to 2005 before it was acquired by UGS. He was also Chairman of previously Nasdaq-listed Lumenis and previously Nasdaq-listed ECtel, a provider of integrated revenue management solutions, from 2004 to 2006. He holds a BA in Economics from the Hebrew University and an MBA from the Massachusetts Institute of Technology.

Rishad Tobaccowala is Strategy & Growth Officer and member of the Directoire+ of Publicis Groupe, the world’s third largest communications group. He was most recently the Chairman of DigitasLBi and of Razorfish, two global firms owned by Publicis Groupe focused on marketing and business transformation. Rishad was previously the Chief Strategy and Innovation officer of VivaKi, a global leader in digital advertising solutions. He has 35 years of experience in marketing and has worked, helped grow, founded/co-founded or incubated a variety of companies including Leo Burnett, Starcom, SMG Next, Starcom IP, Giant Step, Play, and Denuo. He is also Chairman of The Tobaccowala Foundation, which helps 10,000 people in India access better education and healthcare.

2010

Harel is chairman of Lumenis and serves as an active board member of a number of portfolio companies of the Viola Group.

Harel was appointed Non-executive Chairman by the Board in January 2017

HAREL BEIT-ON RISHAD TOBACCOWALA

Nomination Committee

Non-Executive Chairman Deputy Chairman & Non-Executive Director

None

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Biography

Year Appointed 2007



Recent Developments

Name

Title

Continued Board of Directors

Nir Tarlovsky (51) was appointed to act as a Non-executive Director of Matomy in November 2016. He has been an entrepreneur and angel investor for the last 20 years. He is currently Co-Founder at thetime, a leading early stage investor in Israeli in the digital space. Operating the leading incubator in Israel and firstime ventures, a post-seed / pre-A $60mm fund. He is a shareholder and Board member of numerous technology companies, including Pixellot, Playbuzz and Kidbox.com. He was one of the early investors in Matomy and was a member of its board of directors. Previously, he was the EVP Business Development at Churchill Ventures, Lead Investor at Nielsen BuzzMetrics and Co-Founder and EVP Business Development at RSL Communications. He has a BA and MA, Economics (summa cum laude) in Economics from Tel Aviv University.

2008

NIR TARLOVSKY

Deputy Chairman & Non-Executive Director

Amir Efrati brings over 20 years of business experience to the role. He is the Managing Partner and Portfolio Manager of Brosh Capital and Exodus Capital. Previously, he was the Managing Partner of the Dragon Variation Fund. Before that, he was a Portfolio Manager at JCK Partners and Elm Ridge Capital in NYC as well as an investment banker at Morgan Stanley. He has an MBA (honors) from Columbia Business School and a BA (honors) in Economics from Tel Aviv University.

2007

Remuneration Committee Audit Committee

None None

Managing Partner and Portfolio Manager of Brosh Capital and Exodus Capital

Co-Founder at thetime

AMIR EFRATI

Non-Executive Director

Year Appointed 20162016

None

None

Mr Locker currently serves as the Chairman of the Board of Israel Aerospace Industries (IAI).recently served as the Director General of the Israeli Prime Minister’s Office and head of Prime Minister Benjamin Netanyahu’s economic headquarters. Prior to joining the Prime Minister’s Office, Mr Locker practiced law in prominent Tel-Aviv and Wall Street commercial law firms as an associate and partner. Mr Locker earned an LL.B. from Tel-Aviv University’s School of Law (1994), a B.A. degree in accounting from Tel-Aviv University Business School (1994) and an LL.M. (with distinction) in taxation from Georgetown University Law School, Washington DC (2001).

HAREL LOCKER

Biography

Year Appointed

Committee Mem-bership(s)


Recent Developments

Name

Title

Sagi Niri joined Matomy in 2008. Prior to joining Matomy he was Chief Controller at McCann Erickson Israel Group from 2000 to 2008 and a manager at Deloitte Israel. He holds a BA in Corporate Finance from the College of Management— Academic Studies and an MBA in Finance from Manchester University. He has been a member of the Institute of Certified Public Accountants in Israel since 2000.

20142014

Audit CommitteeRemuneration CommitteeNomination Committee


Effective 9 January 2018 announced his resignation as Chief Executive Officer to be succeeded by Mr. Liam Galin.

Nadav serves on several boards of portfolio growth media and technology companies managed by Impact Equity Corporation

Effective 24 October 2017 Mr Zohar completed his three-year term of office of as a non-executive “External Director” under the Israeli Companies Law, 5759-199 and retired from the Board

SAGI NIRI

Nadav Zohar was appointed as an independent Non-executive Director of Matomy in March 2014. He is a Global head of Corporate Development at Gett. Previously, Nadav was Senior Consultant of Impact Equity Corporation, Chairman of Soluto and also held a number of senior management roles at Morgan Stanley and Lehman Brothers. Nadav holds an MSc in Finance from the London Business School and an LLB from the University of Reading

2016

Audit CommitteeRemuneration Committee

Chairman of the Board of Israel Aerospace Industries (IAI).

NADAV ZOHAR

Independent Non-Executive Director


Executive DirectorIndependent Non-Executive Director

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Biography

Year Appointed

Name

Title


Ofer Druker, is the co-founder of Matomy and currently serves as Chief Executive Officer (“CEO”). Previously, he was Chief Executive Officer at Xtend Media, which he cofounded in 2006. Xtend Media was acquired by Matomy in 2008. Previously, he was President of Soho Digital International, a subsidiary of Direct Revenues from 2005 to 2006, and President of International Sales at Cydoor Desktop Media, an Israeli company from 1998 to 2005. He was also co-founder of both Soho Digital International and Cydoor Desktop Media. He holds a BA in Middle East and African Studies from Tel Aviv University.

2007

OFER DRUKER

Executive Director



Recent Developments

None

None

Effective 13 April 2017, Ofer Druker resigned as Chief Executive Officer (“CEO”) and Executive Director, and the Board appointed Sagi Niri to this role. Mr Druker has agreed to provide ongoing strategic and business development advice and assistance for a period of at least one year, allowing a smooth and orderly handover of the CEO responsibilities.

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Directors’ Report

Directors’ Report

The Directors present their report and the Group Financial Statements of

Matomy Media Group Ltd. (“Matomy” or the “Group”) for the financial year

ended 31 December 2017.

Matomy was incorporated in Israel as a private limited liability company. Its

registered office is in Israel and its registered number is 513795427. The

principal legislation under which Matomy operates is the Israeli Companies

Law 5759-1999 (the ‘‘Israeli Companies Law’’ or the “Companies Law”).

Matomy is a global technology company with a portfolio of superior, data-

driven advertising platforms including MobFox, myDSP, Team Internet,

Optimatic and WhiteDelivery. By providing customized programmatic

and performance solutions supported by unique data analytics and

optimization technology, Matomy empowers advertising and media

partners to best meet their evolving growth-driven goals. Matomy is the

holding company of the Group. Its principal subsidiary undertakings are:

Matomy Media Ltd. (100% ownership); Matomy USA Inc. (100%); Team

Internet AG (80%) and Optimatic Inc. (100%).

Strategic report

Pursuant to sections 414A-D of the Companies Act 2006, the business

review has been replaced with a strategic report, which can be found on

pages 14 to 49. This report sets out the development and performance

of Matomy’s business during the financial year, the position of the

Group at the end of the year and a description of the principal risks and

uncertainties facing the Group.

UK Corporate Governance Code

Matomy’s statement on corporate governance can be found in the

Corporate Governance Report and the Audit Committee Report on pages

64 to 76. The Corporate Governance Report and the Audit Committee

IDO BARASHCompany Secretary

The Directors present their report and the Group Financial Statements of Results and dividends for Matomy Media Group Ltd. (“Matomy” or the “Group”) for the financial year ended 31 December 2017.

Report form part of this Directors’ Report and are

incorporated into it by reference.

Results and dividends

Matomy’s audited Financial Statements for 2017 are set

out on pages 94 to 133. Revenue during 2017 amounted

to $245.1 million (2016: $276.6 million).

Matomy does not anticipate paying any dividends for the

foreseeable future.

Post-balance sheet events

The material events after 31 December 2017 are: (i)

The successful completion of the issuance of convertible

bonds in February 2018 in which the Matomy raised

approximately $30 million US dollars; and (ii) the

appointment of Mr. Liam Galin as President & CEO of

Matomy, to succeed Mr. Sagi Niri as Matomy’s Chief

Executive Officer on 9 January 2018.

Share capital

As at 31 December 2017, the authorised share capital of

Matomy was 4,305,000 New Israeli Shekels divided into

430,500,000 Ordinary Shares, par value NIS 0.01 per

share. The issued voting share capital was 97,535,023

ordinary shares.

As at the date of this report, Matomy had been notified

of the following significant holdings of voting rights in its

ordinary shares in accordance with the Financial Conduct

Authority’s Disclosure and Transparency

UK Corporate Governance Code

Matomy’s statement on corporate governance can be

found in the Corporate Governance Report and the Audit

Committee Report on pages 64 to 76. The Corporate

Governance Report and the Audit Committee Report form

part of this Directors’ Report and are incorporated into it by

reference.

At the Annual General Meeting of the Shareholders of

Matomy held on 10 January 2017, Shareholders authorised

the Directors, amongst other things, to allot and issue the

following:

• up to an aggregate nominal amount equal to one-

third of the Company’s issued share capital in

existence as of the date of the 2016 AGM

• up to an aggregate nominal amount equal to two-

thirds of the Company’s issued share capital as of the

date of the 2017 AGM (such amount to be reduced

by the aggregate nominal amount of any securities

issued under the preceding sub-paragraph)

This authority expires at the conclusion of the Company’s

next AGM or the date that is 15 months after the date of

such resolutions and the conclusion of Matomy’s next AGM

of Matomy, save that Matomy may before such expiry seek

board approval to extend the term of the authority. At the

forthcoming AGM, the Directors of Matomy intend to seek

authority to extend this authorisation.

Interests in own shares

As at 31 December 2017, (i) 65,625 Ordinary Shares were

held by Matomy; (ii) 9,693,250 Ordinary Shares were

held by Matomy Media Ltd., a wholly-owned subsidiary of

ShareholderNumber of ordinary

shares/voting rights notified

Percentage of ordinary share

capital/voting rights notified

Publicis Groupe B.V. 22,326,246 22.89%

Ilan Shiloah 11,117,555 11.40%

Viola A.V Adsmarket L.P 9,229,577 9.46%

Meitav and its affiliated entities 9,236,327 9.47%

Brosh Capital and

its affiliated entities6,499,866 6.66%

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Matomy; and (iii) 1,211,236 Ordinary

Shares were held by Team Internet

AG, a principal subsidiary of Matomy

(collectively, the ‘‘Dormant Shares’’). In

accordance with the Israeli Companies

Law, the Dormant Shares are classified

as dormant shares with no voting

rights for so long as they are held by

Matomy or any of its subsidiaries.

Research and development

Innovation is important to the future

success of Matomy and to the delivery

of long-term value to shareholders.

Matomy’s research and development

expenses consist primarily of

personnel costs attributable to certain

members of the technology team,

third-party IT services associated

with the ongoing development of

Matomy’s technology. On May 8, 2017

Matomy announced a new strategic

focus on core activities - Team Internet

(domain monetisation) and Mobfox

(programmatic in-app advertising)

resulting in higher revenue stability,

gross margins and profitability.

Following the announcement of this

focus plan, Matomy made significant

investment in research, development

and infrastructure to support the

growth of these core activities.

Going concern

The Directors confirm that, after

making an assessment, they have

reasonable expectation that the Group

has adequate resources to meet its

obligations for the foreseeable future.

The Directors took into consideration,

among others, the fact that in February

2018, the Company completed a public

offering in Israel of Convertible Bonds

(the “Bonds”). Through the issuance

of the Bond, the Company raised a

total gross consideration of ILS 103

million (approximately $29.9 million)

issuing a total of 101,000 units of

Bonds, which bear a coupon of 5.5%

per annum, payable semi-annually on

June 30 and December 31 of each of

the years 2018 to 2021 (inclusive). The

principal of the Bonds, denominated in

ILS, will be repaid in two equal annual

instalments commencing on December

2020. The Bonds will be convertible

into ordinary shares of the Company,

at the discretion of the holders, up

to ten (10) days prior to the final

redemption date (December 21, 2021).

The Company may redeem the Bonds

upon delisting of the Bonds from the

TASE, subject to certain conditions. In

addition, the Company may redeem

the Bonds or any part thereof at its

discretion after 21 December 2021,

subject to certain conditions.

Directors

Matomy’s Board of Directors is

responsible, inter alia, to determine

the policy of the Group and supervise

the performance of the functions and

acts of the Senior Management within

that framework, and to determine

the Group’s plans of action, principal

activities for funding them and the

priorities between them; to examine

the Group’s financial status, and set the

credit limits applicable to Matomy; to

determine the organisational structure

of the Group and its wage policy; and

shall be responsible for preparing

financial reports and certifying them.

Matomy has established properly

constituted Audit, Remuneration

and Nomination Committees of the

Board (in accordance with the Israeli

Companies Law), which have formally

delegated duties and responsibilities.

The UK Corporate Governance Code

recommends that at least half the

directors of the board of a UK-listed

company, excluding the Chairman,

should comprise non-executive

directors determined by the Board

to be independent in character and

judgement and free from relationships

or circumstances which may affect, or

could appear to affect, the Director’s

judgement. The Israeli Companies

Law requires Matomy to appoint at

least two External Directors. The

Israeli Companies Law also requires

the Board to determine the minimum

number of board members who

are required to possess accounting

and financial expertise; one of such

persons must be an External Director.

In determining the number of board

members required to have such

expertise, the Board must consider,

amongst other things, the type and

size of the business and the scope and

complexity of its operations.

As at the date of this report, the Board

has six members: the Non-Executive

Chairman (Harel Beit-On); and five

Non-Executive Directors (Sagi Niri,

Harel Locker, Amir Efrati, Nir Tarlovsky

and Rishad Tobaccowala). During

2017 Matomy’s external directors (as

required by Israeli Companies Law)

are Nadav Zohar and Harel Locker.

See “Recent Developments” for more

information about the Board. The

biographical details of each of the

current Directors are set out

on pages 53 and 58, and details of

their membership of the Board’s

committees are set out elsewhere in

this report.

Subject to law and the Group’s Articles

of Association, the Directors may

exercise all of the powers of the Group

and may delegate their power and

discretion to committees.

Matomy’s Articles of Association

give the Directors power to appoint

and replace Directors. Under the

terms of reference of the Nomination

Committee, any appointment to

the Board of Matomy must be

recommended by the Nomination

Committee for approval by the Board.

The Articles of Association also state

that all Directors (other than External

Directors) shall be elected by ordinary

resolution at an annual general

meeting or at an extraordinary general

meeting. Each Director shall serve until

the first annual general meeting that

follows the annual general meeting

or extraordinary general meeting

at which such Director was elected,

where such Director may, subject to

eligibility, offer him- or herself up for

re-election.

In relation to the External Directors

of the company, under the Israeli

Companies Law, the term of office of

an External Director shall be three

years, and the company may appoint

him or her for two further consecutive

terms of three years each.

In accordance with the UK Corporate

Governance Code, the Board has

reserved certain matters that can

only be decided by the full Board. In

addition, the Board has established

Audit, Nomination and Remuneration

Committees (in accordance with the

Israeli Companies Law) with formally

delegated duties and responsibilities

within written terms of reference. If

the need should arise, the Board may

establish additional committees, as it

deems appropriate.

The Board has a formal schedule of matters reserved to it for decision and approval that include, but are not limited to:

• the Group’s business strategy;

• annual budget and operating plans;

• major capital expenditure and acquisitions;

• the systems of corporate governance, internal controls and risk management;

• the approval of the interim and annual financial statements and interim management statements; and

• any interim dividend and the recommendation of any final dividend.

Audit Committee

The Board’s Audit Committee has been structured to comply with the recommendations of the UK Corporate Governance Code and the requirements of the Israeli Companies Law. The Audit Committee’s terms of reference covers issues such as membership, the right to attend meetings, the frequency of meetings and quorum requirements. The terms of reference also set out the Audit Committee’s duties (including under Israeli Companies Law) and the authority to carry out its duties.

The duties of the Audit Committee include:

• monitoring the integrity of Matomy’s financial statements;

• reviewing the adequacy and effectiveness of Matomy’s financial controls and internal controls and risk management policies and systems;

• making recommendations concerning the appointment of the internal auditor and external auditor;

• reviewing and monitoring the internal audit function;

• overseeing Matomy’s relationship with its external auditor;

• determining whether certain engagements and transactions are material or extraordinary;

• determining if non-extraordinary transactions with a Controlling Shareholder must be tendered pursuant to a competitive process; and

• otherwise approving certain engagements and transactions and reporting to the Board on its proceedings.

The terms of reference also set out the authority of the Audit Committee to carry out its responsibilities.

Subject to the provisions of the Israeli Companies Law, the Audit Committee meets at least four times per year at appropriate intervals in the financial reporting and audit cycle, and at such other times as the Audit Committee’s chairman deems necessary.

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The Board’s Nomination Committee has been structured to comply with the recommendations of the UK Corporate Governance Code. The Nomination Committee’s terms of reference cover issues such as membership, the right to attend meetings, the frequency of meetings and quorum requirements. The terms of reference also set out the Nomination Committee’s duties and the authority to carry out its duties.

The duties of the Nomination Committee include:

• assisting the Board in determining the appropriate structure, size and composition of the Board;

• formulating Director and Senior Management succession plans;

• making recommendations concerning the nomination and re-election of the Group’s Chairman and other Directors;

• recommending suitable candidates for the role of Senior Independent Director and for membership of the Audit Committee and Remuneration Committee; and

• reporting to the Board on its proceedings.

The Nomination Committee meets as frequently as the Nomination Committee’s Chairman deems necessary. Any member of the Nomination Committee may request a meeting if he or she considers that one is necessary.

Remuneration Committee

The Board’s Remuneration Committee has been structured to comply with

the recommendations of the UK Corporate Governance Code and the requirements of the Israeli Companies Law. The Remuneration Committee’s terms of reference covers issues such as membership, the right to attend meetings, the frequency of meetings and quorum requirements. The terms of reference also set out the Remuneration Committee’s duties (including under Israeli Companies Law) and the authority to carry out its duties.

The duties of the Remuneration Committee include:• recommending to the Board for

approval a compensation policy, in accordance with the requirements of the Israeli Companies Law;

• advising on the development of incentive-based remuneration plans and equity-based plans;

• determining whether to approve transactions concerning the terms of engagement and employment of the Directors, Chief Executive Officer and other Senior Management;

• approving the design of, and determining targets for, performance-related pay schemes and approving the total annual payments made under such schemes; and

• making recommendations with respect to the individual remuneration packages of the Chairman, Directors, Chief Executive Officer and other Senior Managers.

The Remuneration Committee shall also produce an annual remuneration report to be approved by the Shareholders at the annual general meeting. The Remuneration Committee meets at least two times

per year, and at such other times as the Remuneration Committee’s Chairman deems necessary.

Directors’ remuneration

The Remuneration Committee, on behalf of the Board, has adopted a policy that aims to attract and retain the Directors needed to run Matomy successfully. Details of the Directors’ remuneration are set out on pages 76 and 78 of this report.

Directors’ interests

Details of the Directors’ and their connected persons’ interests in the ordinary shares of Matomy are set out in the Share Capital Section above. Except for: (i) the warrants granted to Viola A.V Adsmarket L.P and its affiliated entities to purchase up to 1,239,735 Ordinary Shares in aggregate between them at an exercise price of $1.11 per share; and (ii) the options to purchase up to 1,518,293 Ordinary Share at an exercise price of $1.11 per share granted to Ilan Shiloah [IS no longer a Director], no Director has any other interest in any shares or loan stock of the Group. There were no transactions with Directors of the Group and related party transactions in 2017. During that year, no Director had any material interest in any contract of significance to the Group’s business.

Directors’ share interests

Directors’ holdings in the shares of Matomy as at 31 December 2017 are shown on page 59.

Directors’ insurance and indemnities

Matomy maintains Directors’ and officers’ liability insurance that provides appropriate cover for legal

action brought against its Directors.

In accordance with section 236 of the Companies Act 2006, qualifying third-party indemnity provisions are in place for the Directors and Company Secretary in respect of liabilities incurred as a result of their office, to the extent permitted by law.

Management report

The Directors’ Report and Strategic Report comprises the “management report” for the purposes of the Financial Conduct Authority’s Disclosure and Transparency Rules (DTR 4.1.8R).

Internal controls

The Corporate Governance Report and Audit Committee Report on pages 64 to76 includes the Board’s assessment of Matomy’s system of internal controls.

Employees

Matomy places considerable value on the involvement of its employees and uses a number of ways to engage with employees on matters that affect them and the performance of the Group. These include frequent business performance updates by members of the Senior Management team for all employees, regular update briefings for all employees, regular team meetings, and the circulation to employees of results announcements and other corporate announcements. This also helps to achieve a common awareness amongst employees of the financial and economic factors affecting Matomy’s performance.Matomy utilises several anonymous internal forums through which employees can express issues and views that are likely to affect them and their colleagues. A robust

employee engagement survey process is also in place to ensure that employees have a voice in the organisation and that Matomy can take appropriate action based on employee feedback.

Equal opportunities

Matomy is committed to providing equality of opportunity to all employees without discrimination. The Group applies fair and equitable employment policies that seek to promote entry into and progression within Matomy. Appointments are determined solely by application of job criteria, personal ability, behaviour and competency.

Disabled persons

Disabled persons have equal opportunities when applying for vacancies, with due regard to their skills and abilities. Procedures ensure that disabled employees are fairly treated in respect of training and career development. For those employees becoming disabled during the course of their employment, Matomy is supportive so as to provide an opportunity for them to remain with the Group, wherever reasonably practicable.

In the opinion of the Directors, all employee policies are deemed to be effective and in accordance with their intended aims.

Financial risk management

It is Matomy’s objective to manage its financial risk so as to minimise the adverse fluctuations in the financial markets on the Group’s profitability and cash flow. The specific policies for managing each of Matomy’s main financial risk areas are determined by the Audit Committee.

Political donations

During 2017, Matomy did not make any political donations (FY2016: $nil).

Disclosure of information to auditorIn accordance with section 418(2) of the Companies Act 2006, each of the Group’s Directors in office as at the date of this report confirms that:

• so far as the Director is aware, there is no relevant audit information of which Matomy’s auditor is unaware; and

• he or she has taken all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to establish that the Group’s auditor is aware of that information.

One of the duties of the Audit Committee, as mentioned above, is to review the scope of work of the auditor and the audit fee and make its recommendations in these matters to the Board.

The Group’s auditor is Kost Forer Gabbay & Kasierer (a member of Ernst & Young Global). A resolution to re-appoint Kost Forer Gabbay & Kasierer as auditor to Matomy will be proposed at the forthcoming Annual General Meeting.

Annual general meeting

As at the publication of this report, no date has been set for Matomy’s [2018] AGM. Upon confirmation of such date, Matomy will issue a formal notice to all Shareholders informing them of the scheduled date.

By order of the Board:IDO BARASHCompany Secretary30 April 2018



OVERVIEW STRATEGICREPORT



OVERVIEW


The Board is committed to the highest standards of corporate governance,

which it considers to be central to the effective management of the

business and to maintaining the confidence of investors. Matomy complies

with all applicable laws and endeavors to observe the customs and culture

in the countries in which it operates and does business.

To this end, Matomy expects all Directors and employees to strive to

achieve the highest standards and to act with respect and integrity. The

Board monitors and keeps under review the Group’s corporate governance

framework. In accordance with the Listing Rules of the UK Listing

Authority, Matomy confirms that since its admission to the High Growth

Segmnent of the London STock Exchange on 8 July 2014 (the “Admission”),

it has complied with the relevant provisions set out in Section 1 of the UK

Corporate Governance Code 2012 (the “Code”) to the extent applicable

to it, and the Israeli Companies Law, 5799-1999 (the “Israeli Companies

Law”). Furthermore, following Matomy’s commencement of trading on

the Tel/Aviv Stock Exchange the “TASE”) on 16 February 2016, Matomy

complies with the applicable provisions relating to its trading on TASE.

This report, together with the Remuneration Committee Report on pages

73 to 75, provides details of how Matomy has applied the principles and

complies with its legal obligations.

The Board

The Board is collectively responsible for promoting Matomy’s success.

The Board provides leadership for the Group and concentrates its efforts

on strategy, performance, governance and internal control. As at the date of

this report, the Board has six members: the Non-Executive Chairman (Harel

Beit-On); and four Non-Executive Directors (Harel Locker, Amir Efrati, Nir

IDO BARASHCompany Secretary

Corporate Governance Report

Tarlovsky, Rishad Tobaccowala, Sagi Niri). See “Recent

Developments.”

Mr. Harel Beit-On succeeded Mr. Howell as Chairman

with effect on 17 January 2017. See “Recent

Developments.”

Mr. Rishad Tobaccowala assumed the role of Deputy

Chairman with effect on 17 January 2017.

See “Recent Developments.” The biographical details

of each of the current Directors are set out on pages 53

and 58, and details of their membership of the Board’s

committees are set out below.

The Board has a formal schedule of matters reserved to it

for decision and approval that include, but are not limited to:

• the Group’s business strategy;

• annual budget and operating plans;

• major capital expenditure and acquisitions;

• the systems of corporate governance, internal

control and risk management;

• the approval of the interim and annual financial

statements and interim management statements; and

any interim dividend and the recommendation of

any final dividend.

The Board and Audit Committee held four quarterly

scheduled meetings in 2017. Additionally, ad hoc

conference calls and committee meetings were also

convened between scheduled Board meetings to

address specific matters that required the Board’s

attention, at which the Group’s strategy was regularly

reviewed. All Directors participated in discussions

relating to Matomy’s strategy, financial and trading

performance and risk management.

The Board considers it met sufficiently often to enable

the Directors to discharge their duties effectively. The

table below gives details of Directors’ attendance at

Board and committee meetings in 2017:

(1) Mr. Nadav Zohar ceased to be a director of the Company on 24 October 2017 after completing his three-year term of office.(2) Mr. Ofer Druker ceased to be a director of the Company on 30 May 2017. (3) Mr. Sagi Niri effective 9 January 2018 announced his resignation as Chief Executive Officer to be succeeded by Mr. Liam Galin(4) Nomination Committee and Remuneration committee statistics reflect both routine and ad hoc meetings(5) Table participation includes attendance by proxy.

Board Audit CommitteeNomination Committee

CommitteeRemuneration

Committee (4)

Harel Beit On 4/4 2/2

Amir Efrati 4/4 2/2

Nir Tarlovsky 3/4 3/4

Nadav Zohar (1) 3/4 3/4 2/2 1/2

Rishad Tobaccowala 4/4

Ofer Druker (2) 2/4

Sagi Niri (3) 4/4 2/2

Harel Locker 3/4 3/4 2/2






OVERVIEW


Certain Directors were unable

to attend one or more due to

conflicting engagements.

At the request of any Non-Executive

Director, the Non-Executive

Chairman will arrange meetings

consisting of only the Non-Executive

Directors to allow the opportunity

for any concerns to be expressed.

As of 17 January 2017, Mr. Harel

Beit-On succeeded Mr. Howell

as Chairman, and Mr. Rishad

Tobaccowala assumed the role

of Deputy Chairman. The Non-

Executive Chairman is responsible

for leading the Board and its

effectiveness.

As of the date of this report, Liam

Galin is President & Chief Executive

Officer, and is responsible for the

execution of strategy and the day-

to-day management and operations

of the Group. The division of roles

and responsibilities between the

Non-Executive Chairman and the

Chief Executive Officer and Chief

Financial Officer are set out in

writing and agreed by the Board. At

the invitation of the Chairman of the

Remuneration Committee, the Chief

Executive Officer, Chief Finance

Officer, SVP Finance and Company

Secretary may attend meetings

of the Board or its Committee,

except when they have a conflict

or personal interest. No Director is

involved in determining his or her

own remuneration. The Company

Secretary also acts as secretary to

the Committees.

Board balance and independence

In accordance with

recommendations of the relevant

sections of the UK Corporate

Governance Code applicable to

smaller companies and the Israeli

Companies Law, Matomy’s Board

includes two non-Executive

Directors whom the Board

determines to be independent in

character and judgement and free

from relationships or circumstances

which may affect, or could

appear to affect, the Director’s

judgement. Matomy regards all of

the Non-Executive Directors to be

independent for purposes of the

UK Corporate Governance Code,

other than [Harel Beit-On, Rishad

Tobaccowala, Nir Tarlovsky and

Amir Efrati.]

The Directors consider that the

Board has an appropriate balance

of skills and experience by virtue of

the Directors’ varied backgrounds

(see biographical details on pages

53 to 58).

Board appointments

Board nominations are

recommended to the Board by the

Nomination Committee under its

terms of reference. All Directors,

excluding External Directors (as

defined in the Israeli Companies

Law), are subject to re-election by

shareholders at the annual general

meeting following their appointment

and thereafter to re-election at

each annual general meeting, in

accordance with Matomy’s Articles

of Association and the Israeli

Companies Law. Each external

director is appointed for an initial

three-year term, in accordance with

Matomy’s Articles of Association

and the Israeli Companies Law. See

“Recent Developments.”

Information and professional

development

On appointment, Independent

Directors receive a full, formal and

tailored induction, including meetings

with members of the Management

team and briefings on particular

issues. As an ongoing process,

Directors are briefed and provided

with information concerning major

developments affecting their roles

and responsibilities. In particular, the

Directors’ knowledge of Matomy’s

worldwide operations is regularly

updated by arranging presentations

from Senior Management throughout

the Group. The Non-Executive

Chairman and Executive Directors

consult with each Non-Executive

Director to ensure he or she is able to

allocate sufficient time to the Group to

discharge his or her responsibilities.

The Non-Executive Chairman liaises

with the Company Secretary to ensure

that the Board is supplied in a timely

manner with information in a form and

of a quality appropriate to enable it to

effectively discharge its duties.

Directors are also supplied with

a monthly financial report and

receive ongoing updates from the

Audit Remuneration Nomination

Mr Zohar (Chair) Mr Locker (Chair) Mr Beit-On (Chair) (1)

Mr Locker Mr Zohar Mr Zohar

Mr. Tarlovsky Mr Efrati Mr Niri (2)

The terms of reference of each of the principal committees are available on request by writing to the Company

Secretary at the Group’s registered address.

The committees, if they consider it necessary, can engage with third-party consultants and independent professional

advisers and can call upon other resources of the Group to assist them in developing their respective roles.

(1) Mr. Harel Beit-On was appointed by Matomy’s board to succeed Mr. Howell as Chairman with effect on 17 January 2017.(2) Mr. Sagi Niri effective 9 January 2018 announced his resignation as Chief Executive Officer to be succeeded by Mr. Liam Galin

Chief Executive Officer, who provides the Board with information on operational and financial performance and the

Group’s business plans. During the months during which there is no scheduled Board meetings, the Board conducts

monthly telephone Board update calls.

All Directors are able to consult with the Company Secretary. The appointment and removal of the Company

Secretary are matters reserved for the Board as a whole. Directors may obtain, in the furtherance of their duties,

independent professional advice, if necessary, at the Group’s expense. In addition, all Directors have direct access to

the advice and services of the Company Secretary.

Board performance evaluation

The Board recognises that it is required to undertake regularly a formal and rigorous review of its performance and

that of its committees. The Board engages in continuous self-assessment and analysis of its effectiveness.

Board committees

The Board is supported by several committees, including the following principal committees: Audit Committee,

Remuneration Committee and Nomination Committee. All the Independent Non-Executive Directors are members of

each of the principal committees of the Board. Details of the work of the Audit and Remuneration Committees during

the year are given in the reports of those Committees on pages 73 to 75. Information pertaining to the work of the

Nomination Committee during the year can be found on pages 74 to 75.

Set out below is a table identifying the Directors who serve on each of the Committees as of the date of this report:






OVERVIEW


NADAV ZOHARChairman of the Audit

Committee

Audit Committee Report

Audit CommitteeThe Audit Committee comprises four Independent Non-Executive

Directors. The table below gives details of Directors’ attendance at Audit

Committee meetings in 2017.

Nadav Zohar 3/4

Harel Locker 3/4

Nir Tarlovsky 3/4

Includes participation by proxy

Following Mr Beit-On’s appointment on January 19, 2017 as Chairman

of the Company, Mr Tarlovsky replaced Mr Beit-On as a member of the

Audit Committee.

The main roles and responsibilities of the Audit Committee are set out

in written terms of reference. The Audit Committee’s terms of reference

cover issues such as membership, the right to attend meetings, the

frequency of meetings and quorum requirements. They also set out the

Audit Committee’s duties (including under the Israeli Companies Law)

and the authority to carry out its duties.

Nadav Zohar satisfies the requirements to serve as Chairman of the

Audit Committee (see biographical details on pages 53 to 58).

Audit Committee

*Effective 24 October 2017 Mr. Zohar completed his three-year term of office of as a non-executive

"External Director" under the Israeli Companies Law, 5759-199 and retired from the Board.

The duties of the Audit Committee include:

• monitoring the integrity of Matomy’s financial

statements;

• reviewing the adequacy and effectiveness of

Matomy’s financial controls and internal control

and risk management policies and systems;

• making recommendations concerning the

appointment of the internal auditor and external

auditor;

• reviewing and monitoring the internal audit

function;

• overseeing Matomy’s relationship with the

external auditor;

• determining whether certain engagements and

transactions are material or extraordinary;

• determining if non-extraordinary transactions

with a Controlling Shareholder must be tendered

pursuant to a competitive process; and

• otherwise approving certain engagements and

transactions and reporting to the Board on its

proceedings.

The Board is satisfied, in accordance with the provisions

of the Israeli Companies Law, that at least one member

of the Audit Committee is qualified as a “financial and

accounting expert”, pursuant to the requirements of the

Israeli [Companies Law].

Matomy’s Annual Report and the Financial

Statements, taken as a whole, are fair, balanced

and understandable and provide the information

necessary for shareholders to assess Matomy’s

performance, business model and strategy.

Operation of the Audit Committee

The Audit Committee met four scheduled times in

2017. The attendance record of Committee members

is recorded in the table above. At the invitation of the

Chairman of the Audit Committee, the Chief Executive

Officer, the Chief Financial Officer, the Chairman of

the Board and the Group’s external auditors regularly

attend meetings.

Financial statements and significant accounting

matters

The Audit Committee was presented by the Group’s

Management with updates of Matomy’s current internal

control procedures and risk management systems.

The Audit Committee is satisfied that the current

arrangements and Matomy’s internal controls and

risk management systems are appropriate. The Audit

Committee considers that the Group continued to make

good progress with respect to the issues considered

during the year, resulting in better processes,

understanding and awareness combined with a greater

engagement across the business. The debate on risk,

risk tolerance and risk appetite will continue to be a

focus for the Board and the Committee during 2017 and

beyond.

Corporate governance

The Board requested, and the Audit Committee has

advised, that the annual financial statements, taken

as a whole, are fair, balanced and understandable

and provide the information necessary for

shareholders to assess Matomy’s performance,

business model and strategy.

External auditor

Matomy’s external auditor, Kost Forer Gabbay &

Kasierer (a member of Ernst & Young Global), attends

various meetings of the Audit Committee.It is the

responsibility of the Audit Committee to provide

oversight of the external audit process and assess the

effectiveness, objectivity and independence of the

external auditor.

The Audit Committee reviewed the following to provide

oversight of the external audit process:

• the terms, areas of responsibility, associated

duties and scope of the audit as set out in the

external auditor’s engagement letter for the

forthcoming year;






OVERVIEW


• the external auditor’s overall work plan for the

forthcoming year;

• the external auditor’s fee proposal;

• the major issues that arose during the course of

the audit and their resolution;

• key accounting and audit judgements and

estimates;

• the levels of errors identified during the audit; and

• recommendations made by the external auditor

in their management letters and the adequacy of

management’s response.

• The Audit Committee reviewed the independence

of the auditor having regards to:

• a report from the external auditor describing their

arrangements to identify, report and manage any

conflicts of interest; and

• the extent and nature of non-audit services

provided by the external auditor.

The Audit Committee is responsible for the

development, implementation and monitoring of

policies and procedures on the use of the external

auditor for non-audit services, in accordance with

professional and regulatory requirements.

These policies are kept under review to ensure that

Matomy benefits in a cost-effective manner from the

cumulative knowledge and experience of its auditor

whilst also ensuring that the auditor maintains the

necessary degree of independence and objectivity.

During the year under review, Matomy’s external

auditor, Kost Forer Gabbay & Kasierer, performed a

variety of non-audit services. A significant proportion of

non-audit services related to the following:

• reviewing Matomy’s half-year reporting;

• the provision of tax compliance services in relation

to both direct and indirect taxation;

• the provision of regulatory advice in relation to

documentation and control.

The assurance provided by Matomy’s auditor on the

items above is considered by the Group as strictly

necessary in the interests of the Group. The level of non-

audit services offered reflects the auditor’s knowledge

and understanding of Matomy’s operations. Matomy

has also continued with the appointment of other

accountancy firms to provide certain non-audit services

to the Group in connection with tax and regulatory

advice and anticipates that this will continue for the

foreseeable future.

The provision of tax advisory services, due diligence

and regulatory advice is permitted with the Audit

Committee’s prior approval in line with the approval

limits set out above. The provision of internal audit

services, valuation work and any other activity that could

result in the external auditor reviewing and relying on

its own work and conclusions is prohibited. Kost Forer

Gabbay & Kasierer was not engaged during the year to

provide any services which would have given rise to a

conflict of interest.

The Audit Committee considers the effectiveness of the

external audit process on an annual basis, reporting its

findings to the Board as part of its recommendation. This

process is completed through completion of a detailed

questionnaire (which includes consideration of the audit

partner, the approach, communication, independence,

objectivity and reporting). This is completed by members

of the Audit Committee and senior members of Matomy’s

finance team who regularly interact with the external

auditor. The results of the questionnaire are reported to

and discussed by the Audit Committee. It also assessed the

cost effectiveness and value-for-money aspect of the audit.

The Audit Committee holds private meetings with the

external auditor as required to discuss review key issues

within their sphere of interest and responsibility.

The Audit Committee considered the length of

Kost Forer Gabbay & Kasierer’s, a member of

Ernst & Young Global, tenure and the results of the

detailed questionnaire when assessing its continued

effectiveness, independence and re-appointment.

The Committee continues to remain satisfied with

the work of Kost Forer Gabbay & Kasierer, a member

of Ernst & Young Global, and that it continues to

remain independent and objective. The Committee

has therefore recommended to the Board that a

resolution is put to shareholders recommending

its reappointment together with their terms of

engagement and remuneration at the Annual General

Meeting of Matomy.

This will continue to be assessed on an annual basis.

Accountability

The Board acknowledges that this report should

present a fair, balanced and understandable assessment

of Matomy’s position and prospects.

In this context, reference should be made to the

Directors’ Responsibilities Statement, which

includes a statement in compliance with the Code

regarding Matomy’s status as a going concern, and

to the independent auditor’s report which includes

a statement by the auditor about their reporting

responsibilities.

The Board recognises that its responsibility to present a

fair, balanced and understandable assessment extends

to interim and other price-sensitive public reports and

reports to regulators as well as information required

to be presented by law. At the request of the Board,

the Audit Committee considered whether the 2017

Annual Report is fair, balanced and understandable,

and whether it provided the necessary information for

shareholders to assess Matomy’s performance, business

model and strategy. The Audit Committee is satisfied

that, taken as a whole, the Annual Report is indeed fair,

balanced and understandable.

Internal controls

The Board acknowledges that it is responsible for

Matomy’s system of internal controls, and the Audit

Committee reviews its effectiveness. Such a system is

designed to manage rather than eliminate the risk of

failure to achieve business objectives, and can provide

only reasonable and not absolute assurance against

material misstatement or loss. The Audit Committee

has reviewed the effectiveness of the key procedures

which have been established to ensure internal control.

As part of this review there are procedures designed to

capture and evaluate failings and weaknesses, and in the

case of those categorised by the Board as significant,

procedures exist to ensure that necessary action is

taken to remedy the failings.

The Board confirms that there is an ongoing process

for identifying, evaluating and managing the significant

risks faced by the Group. The process is regularly

reviewed by the Audit Committee which reports its

findings for consideration by the Board.

The key procedures operating within Matomy were as

follows:

• during the year under review, the Audit

Committe met to evaluate risk and consider the

appropriateness of Matomy’s risk assessment

systems and internal control policies;

• Matomy maintains a risk register which cover

the strategic and operational business risks. This

register is updated on an ongoing basis, and is






OVERVIEW


presented to the Audit Committee no less often

than a quarterly basis;

• The senior executives of Matomy report to the

Executive Directors on a regular basis regarding

ongoing financial and operational progress within

the respective business units and functions they

manage;

• The significant risks faced by the Group are

considered regularly by Matomy’s Board, which is

charged with the development and implementation

of appropriate monitoring and mitigation plans,

where appropriate.

• Matomy has established policies and procedures

designed to ensure adequate levels of customer

credit controls;

• Matomy has a comprehensive system of budgetary

and reforecasting control, focused on monthly

performance reporting which is at an appropriate

detailed level. A summary supported by ommentary

and performance measures is presented to the

Board each month. The performance measures

are subject to review to ensure that they provide

relevant and reliable indications of business

performance;

• Matomy has established procedures for the

delegation of authority;

• Matomy’s business units operate within a

framework of policies and procedures which are

maintained online, and cover key issues such as

inside training, conflicts and ethics; and

• Matomy has established policies and procedures

designed to ensure the maintenance of accurate

accounting records sufficient to enable the

preparation of consolidated financial statements, in

accordance with the financial reporting frameworks

applicable to the Group, the main feature of which

is a structured system of review and approval by

Management and the Board.

Internal auditor

• The Israeli Companies Law requires the Board to

appoint an internal auditor who is recommended by

the Audit Committtee. An internal auditor may not be:

• a person (or a relative of a person) who holds 5% or

more of Matomy’s outstanding Ordinary Shares or

voting rights;

• a person (or a relative of a person) who has the power

to appoint a director or the general manager of

Matomy;

• an office holder or Director of Matomy or a relative

thereof; or

• a member of Matomy’s independent accounting firm,

or anyone on its behalf.

Audit Committee effectiveness

The Board, as part of its general review of its overall

effectiveness, concluded that the Audit Committee was

working effectively.

This report was approved by the Board and signed on its

behalf by:

HAREL LOCKER

Interim Chairman of the Audit Committee

30 April 2018

Internal Audit

Under the Israeli Companies Law, the board of

directors of a publicly traded company must appoint an

internal auditor nominated by the audit committee. The

role of the internal auditor is to examine whether the

company’s actions comply with the law, integrity and

orderly business practice. Under the Israeli Companies

Law, the internal auditor may not be an interested

party, an office holder, or an affiliate, or a relative of

an interested party, office holder or affiliate, nor may

the internal auditor be the company’s independent

accountant or its representative. Daniel Spira, Certified

Public Accountant (Isr.) serves as our Internal Auditor.

The Audit Committee defined a two year Internal Audit

Work Plan. During 2017 the internal auditor examined

the Salaries and Personnel and no material findings

were found.


The Remuneration Committee comprises three

Independent Non-Executive Directors. The

Remuneration Committee convened [three] times

during 2016, and reviewed and recommended to

the Board regarding the Remuneration Policy, and

compensation terms of senior office holders.

The Remuneration Committee is responsible for:

• recommending to the Board for approval a

remuneration policy in accordance with the

requirements of the Israeli Companies Law;

• incentive-based remuneration plans and equity-

based plans;

• determining whether to approve transactions

concerning the terms of engagement and

employment of the Directors, CEO and other

senior management; and

• approving the design of and determining targets

for performance-related pay schemes and

approving the total annual payments made under

such schemes and making recommendations with

respect to the individual remuneration packages

of the Chairman, Directors, CEO and Senior

Management.

The Board considers that Matomy complies with the

requirements of the Israeli Companies Law and the

applicable recommendations of the UK Corporate

Governance Code with regard to the composition of

the Remuneration Committee.






OVERVIEW


Harel Locker (Chair) 2/2

Nadav Zohar 2/2

Amir Efrati


Information regarding Senior Executives Remuneration

Senior Executives and Director Remuneration in 2017

The table below summarises the Directors’ remuneration as approved by the shareholders (all figures in US dollars):

Name Base Salary Employer CostVariable Compensation

+ Equity-Based Compensation

( employer cost + Equity-Based Compensation)

Druker, Ofer 613,620 646,492 220,311 866,802

Keren Farag Krygier 192,980 318,255 269,425 542,586

Sagi Niri 268,494 355,508 150,603 506,111

Gil Klein 182,072 257,436 177,862 410,299

Ido Barash 140,959 190,913 197,346 388,259

(1) Cash compensation amounts denominated in

currencies other than the U.S. dollar were converted into

U.S. dollars at the average conversion rate for the year

ended December 31, 2017.

(2) Amounts reported in the column titled “Total Cost”

include benefits and perquisites or on account of such

benefits and perquisites, including those mandated

by applicable law. Such benefits and perquisites may

include, to the extent applicable to each executive,

payments, contributions and/or allocations for savings

funds, pension, severance, vacation, car or car allowance,

medical insurances and benefits, risk insurances,

convalescence pay, payments for social security, tax

gross-up payments and other benefits and perquisites

consistent with our guidelines.

(3) Amounts reported in this column titled “Variable

Compensation + Equity-Based Compensation” include

such sums paid as commission, incentive and bonus

payments as recorded in our financial statements for

the year ended December 31, 2017 together with

the expense recorded on account of equity based

compensation in our financial statements for the year

ended December 31, 2017.

Adoption of remuneration policy

At the Extraordinary General Meeting (the “EGM”)

held on 04 November 2016 and as required by the

Israeli Companies Law, 5759-1999 and any regulations

promulgated thereunder (the “Israeli Companies

Law”) the shareholders approved the adoption of the

Remuneration Policy with respect to the terms of office

and employment of the Company’s “office holders” (as

such term is defined in the Israeli Companies Law). A

detailed review is included below.

DeputyDirector Base Fee Audit Remuneration Nomination Chairman Total

Nadav Zohar 40,000 10,000 4,000 1,500 55,500

Harel Locker 40,000 4,000 10,000 1,500 55,500

The Board’s Nomination Committee is structured to

comply with the recommendations of the UK Corporate

Governance Code. The Nomination Committee’s terms

of reference cover issues such as membership, the

right to attend meetings, the frequency of meetings

and quorum requirements. The terms of reference

also set out the Nomination Committee’s duties and

the authority to carry out its duties. The duties of the

nomination committee include:

• assisting the Board in determining the appropriate

sturcture, size and composition of the Board;

• formulating Director and senior managmenet

succession plans;

• making recommendations concerning Chairman and

other Director nomination and re-election;

• recommending suitable candidates for the role of

senior independent director and for membership of

the Audit Committee and Renumeration Committee;

and

• reporting to the Board on its proceedings.

Corporate responsibility

Details of Matomy’s approach to Corporate

Responsibility are set out on pages 47 to 49.

Relations with shareholders

The Board recognises the importance of maintaining

good communication with its shareholders, and does

this through the Annual Report, preliminary/final and

interim financial statements, interim management

statements and the Annual General Meeting. In

addition, the Chief Executive Officer and Chief

Financial Officer/Chief Operational Officer jointly

give presentations to institutional shareholders

and analysts immediately following the release of

the preliminary/final and interim results. These

presentaions are made available on the Matomy

website, www.matomy.com.

The Non-Executive Directos are available to meet

with major shareholders.

Annual general meeting

Voting at the coming Annual General Meeting will

be by way of poll. The results of the voting at the

Annual General Meeting will be announced and

details of the votes will be available to view on the

Matomy website, www.matomy.com, as soon as

possible after the meeting.


Harel Beit-On (chair) 2/2

Nadav Zohar 2/2

Sagi Niri 2/2

Nomination committee

The Nomination Committee comprises three Independent Non-Executive Directors. The Nomination Committee shall

meet as frequently as the Committee chairman deems necessary. Any member of the Nomination Committee may

request a meeting if he or she considers that one is necessary.

During 2017, the Nomination Committee provided its recommendations relating to the and the appointment of senior

VP level executives.






OVERVIEW


Remuneration Policy for Executive Directors & Senior Managers

This section of the report sets out the remuneration policy for Executive Directors and Senior Managers,

which shareholders approved at the EGM held on 04 November 2016. The Israeli Companies Law and

the regulations adopted thereunder require the Remuneration Committee to adopt a policy for the

Remuneration of Directors and Executive Officers, referred to in this section as ‘‘office holders’’.

The Remuneration policy must be approved at least once every three years by the Shareholders at a

general meeting.

The information provided in this part of the Directors’ Remuneration Report is not subject to audit.

Policy overview

Matomy aims to provide a remuneration structure that is aligned with shareholder interests and, as such, is

competitive in the marketplace to attract, retain and motivate Executive Directors and Senior Managers of

high caliber to deliver continued growth of the business.

The Group’s policy is that performance-related components should form a significant portion of the overall

remuneration package, with maximum total rewards being earned through the achievement of challenging

performance targets based on measures that reflect the best interests of shareholders.

Consideration of shareholder views

The Remuneration Committee will consider shareholder feedback received in relation to the AGM each

year at its next meeting following the AGM. This feedback, plus any additional feedback received during any

meetings from time to time, will then be considered as part of the Group’s annual review of remuneration

policy. In addition, the

Committee will seek to engage directly with major shareholders and their representative bodies should any

material changes be made to the remuneration policy.

Consideration of employment conditions elsewhere in the Group

The Remuneration Committee does not formally consult employees in relation to remuneration policy

for Executive Directors and/or Senior Managers. However, Matomy regularly carries out engagement

surveys which enable employees to share their views with management. To the extent that employees are

shareholders, they can vote on this policy at the AGM.






OVERVIEW


Policy for Executive Directors & Senior Executives

Pursuant to the Israeli Companies Law amended

by Amendment 20, a public company must adopt

a remuneration policy, recommended by its

remuneration committee and approved by the board

of directors and the shareholders, in that order. In

general, all senior executives’ terms of remuneration

— including fixed remuneration, bonuses, equity

remuneration, retirement or termination payments,

indemnification, liability insurance and the grant of

an exemption from liability — must comply with the

company’s remuneration policy.

Furthermore, pursuant to Matomy’s Remuneration

Committee terms of reference (the “TOR”), the Policy

(as defined herein) must include also the following

principles: (i) a significant proportion of a Senior

Executive’s remuneration should be structured so

as to link rewards to individual performance and

performance of Matomy; (ii) the link between variable

compensation and long-term performance and

measurable criteria; (iii) the relationship between

variable and fixed compensation, and the ceiling for

the value of variable compensation;

(iv) the conditions under which a Director or a Senior

Executive would be required to repay variable

compensation paid to him or her if it were later shown

that the data upon which such variable compensation

was based were inaccurate and were required to be

restated in the Company’s financial statements; (v) the

minimum holding or vesting period for variable, equity-

based compensation whilst referring to appropriate

a long-term perspective based incentives; and (vi)

maximum limits for severance compensation.

The employment terms of all new Senior Executives

(as defined below), as well as any amendments to

existing employment terms of any Senior Executives,

will be determined in accordance with this Policy. We

intend, in the framework of the periodic review of

employment agreements that is required by law and

under this Policy or the TOR, to consider, among other

considerations (that are detailed below), any required

adjustments of the terms of employment to the Policy,

if any, taking into consideration the contribution of

such Senior Executive to our performance, the growth

of our business and the best interests of Matomy.

The adoption of this Policy does not confer rights

to Senior Executives to any of remuneration’s

components set forth herein. Senior Executives will

only be entitled to the remuneration components that

will be specified in his or her applicable employment

agreement and/or the mandatory requirements of any

applicable law.

All capitalised terms not otherwise defined herein

shall have the meaning ascribed to them in the Israeli

Companies Law and the regulations promulgated the

reunder.

Compensation philosophy and objectives

We believe that the most effective executive

remuneration program is one that is designed to

reward achievement to encourage a high degree of

execution, and that aligns executives’ interests with

those of Matomy and its Shareholders by rewarding

performance, with the ultimate objective of building

a sustainable company together with improving

Shareholder value. We also seek to ensure that we

maintain our ability to attract and retain leading

employees in key positions and that the remuneration

provided to key employees remains competitive

relative to the remuneration paid to similarly situated

executives of a selected group of our peer companies

and the broader marketplace from which we recruit

and compete for talent. In light of the above, we have

established the following remuneration objectives

for the Company’s executives (the Chief Executive

Officer, Chief Financial Officer /Chief Operational

Officer, Senior Vice Presidents, and all other managers

directly subordinated to the CEO, whether they are

employed by Matomy; all shall be referred to herein

as the “Senior Executives”), as indicators of our overall

remuneration philosophy:

• Remuneration should be related to performance.

We believe that part of the remuneration paid

to the Senior Executives should be aligned with

the performance of Matomy on both a short-

and long-term basis, with a portion of a Senior

Executive’s potential annual performance-based

incentive remuneration and long-term equity-

based remuneration at risk if Group and individual

performance objectives are not achieved.

• Remuneration should serve to encourage

Senior Executives to remain with Matomy. The

Policy’s components are designed to retain

talented executives. We believe that continuity

of employment is critical to achieving Matomy’s

strategic objectives and building shareholder

value. A significant element of the Policy,

therefore, is long-term equity based incentive

remuneration awards that vest on a rolling basis

over periods of several years. As part of the

retention objective, we believe that remuneration

should include a meaningful stock component to

further align the interests of Senior Executives

with the interests of the Shareholders. In addition,

since a competitive Policy is essential to our ability

to attract and retain highly skilled professionals

executive officers, Matomy will seek to establish a

remuneration program that is competitive with the

remuneration program paid to executive officers in

equivalent companies (as defined below).

• Remuneration should be reasonable for our

business, our locations and our long-term, multi-

year approach to achieving sustainable growth.

We believe that an appropriate remuneration

package will attract executives and motivate

them to achieve Matomy’s annual and long-term

strategic objectives. At the same time, we believe

that remuneration should be set at reasonable and

fiscally responsible levels.

• Remuneration should be managed to encourage

initiative innovation and appropriate levels of

risk. We believe incentive remuneration should be

structured to discourage assumption of excessive

short-term risk without constraining reasonable

risk-taking. To achieve this objective, we believe

that the success of Matomy over time will be more

effectively assured by connecting a portion of the

incentive remuneration to longer-term Group

performance.

General process for setting remuneration

The Remuneration Committee shall first determine

the appropriate level of total remuneration for each

position held by a Senior Executive, then determines

the appropriate allocation among annual base cash

remuneration, annual performance-based cash






OVERVIEW


incentive remuneration (cash bonus) and long-term

stock incentive remuneration, based upon following

consideration in determining the total remuneration,

the Remuneration Committee shall take into account

(i) the education, professional experience and

achievements of the applicable Senior Executive;

(ii) the applicable Senior Executive’s position at

Matomy, scope of responsibilities, his contribution to

the Company, the circumstances of his recruitment and

the terms of prior employment agreements with the

Company (if any);

(iii) the financial conditions of the Company,

the global scope of its business (having substantial

international subsidiaries), the complexity of the

Company’s business and the fact that Matomy’s shares

are traded on both the London Stock Exchange and the

Tel Aviv Stock Exchange.

(iv) comparison of the terms of employment

of the applicable Senior Executive to the terms of

employment of other executives at Matomy, as well

as to terms of employment of senior executives in

the same position in equivalent companies (similar

industry, similar revenues, similar market value,

similar scope of activities and/or similar number of

employees) in each of the relevant jurisdictions in

which they are employed, to the extent relevant and

(v) the ratio between the total remuneration

of the applicable Senior Executive and the salary of

all other employees of Matomy and its subsidiaries,

especially the ratio between the total remuneration

and the median and average salary of all such

employees.

The total remuneration of Senior Executives shall

be reviewed annually, taking into account these

Considerations and focusing mainly on the applicable

Senior Executive’s contribution, performance,

Matomy’s business and financial status, Matomy’s

budget and other applicable market conditions.

A change of up to 10% in the total remuneration of any

Senior Executive (other than the CEO) shall be deemed

immaterial and shall only require the approval of the

Remuneration Committee.

A change of up to 10% in the total remuneration

of the CEO shall require the approval of both the

Remuneration Committee and the Board of Directors.

Any change in the total remuneration of any Senior

Executive (including the CEO) which is greater than 10%

shall be subject to receipt of all the required approvals

and consents in accordance with applicable law.

Elements of remuneration

The remuneration of Senior Executives consists of all

or part of the following:

(i) annual base cash remuneration, (ii) annual

performance-based cash incentive remuneration,

(iii) long-term equity-based (shares) remuneration;

(iv) other executive benefits; and (v) retirement and

termination of service or employment arrangements.

The targeted ratio between the fixed elements of

remuneration (Base Salary and other executive

benefits) and the variable elements of remuneration

(Bonus and long-term equity-based remuneration)

shall be as follows*:

Details of each element of Compensation follows:

Annual base cash remuneration

The Senior Executives’ base salary (the “Base Salary”)

is a fixed, cash component of overall remuneration,

which is reviewed and may be adjusted periodically

based on a variety of factors, including Executive

performance, Company performance, general

economic conditions and the subjective business

judgement and general business experience of the

members of the Remuneration Committee, always

taking into account the Remuneration Considerations.

Base Salary ranges are designed to account for

varying responsibilities, experience and performance

levels. The Base Salary shall not exceed the maximum

threshold for annual Base Salary:

(i) for Senior Executives (excluding the CEO) –

1,500,000 NIS; and (ii) for the CEO- 1,800,000 NIS

when resident in Israel and up to US$1,150,000 in the

event of relocation (to North America or Europe) as

this Base Salary includes compensation for living and

education costs associated with family relocation.

Any annual increase up to 5% in the Base Salary of the

CEO or CFO which is linked to an increase in Matomy’s

EBITDA and its subsidiaries on a linear basis for the

relevant year shall only require the approval of the

Remuneration Committee .

Annual performance-based Incentive cash

remuneration

Matomy’s annual performance-based incentive cash

remuneration (the “Bonus”) program is designed to tie

Executive remuneration to the Group’s performance

and to encourage Senior Executives to remain with

Matomy. The Bonus program for certain Senior

Executives is based on the achievement of financial

and/or personal thresholds. Such thresholds may

be measurable financial or personal thresholds. The

Remuneration Committee and the Board of Directors,

as applicable pursuant to this Policy, shall set and

designate the maximum permitted thresholds for a

Bonus, subject to the approvals required under the

Israeli Companies Law. The CEO shall be authorised

to determine the annual criteria for payment of any

Bonus which falls within the approved permitted

thresholds to all Senior Executives (other than the

CEO and the Directors), and the annual criteria for

payment of the Bonus to the CEO shall be determined

by the Remuneration Committee, all in accordance

with the provisions of the Policy.

Unless expressly approved otherwise, the Bonus shall

not be deemed as part of the salary for all purposes

including social benefit and severance payments.

The criteria on which the annual Bonus are based shall

be calculated as follows:

CEO Senior Executives (excluding the CEO)

Annual Base Salary 100% 100%

Other fixed benefits 30%-40% 30%-40%

Annual Bonus up to 75% up to 50%

Equity (per vesting annum)** up to 3% up to 1.5%

* The percentages above, except equity, reflect ratios compared to the annual Base Salary.

** Commencing as at July 2014 and reflect the percentage out of the issued share capital.






OVERVIEW


(i) Company performance measures — Revenues and/

or EBITDA, measured against the targets of the annual

budget, as approved by the Board of Directors, and/or

work plan and/or analyst consensus of Matomy for the

relevant year. The weight of Company Performance

will constitute at least: (a) for the CEO and CFO/COO

– 55% of the total Bonus; and (b) for the other Senior

Executives – 70% of the total Bonus.

(ii) Personal performance measures — The criteria

shall be determined individually when such personal

criteria are set. A list of personal Qualitative Goals is

attached as Exhibit I hereto (the “Qualitative Goals”).

The weight of Personal Performance will constitute up

to: (a) for the CEO and CFO/COO – 45% of the total

Bonus; (b) for the other Senior Executives – 30% of the

total Bonus.

With respect to measurable financial criteria the

threshold for the payment of the annual Bonus will

be set based on achievement of a certain percentage

of one or more of the Company Performance

measures. In addition, the Board of Directors may,

in its sole discretion, upon the recommendation of

the Remuneration Committee, change the amount

of the Bonus (increase or decrease), which changes

may not be based on measurable criteria, taking into

account, inter-alia, such Senior Executive contribution

to Matomy’s performance, as well as other events

that affected the Group’s financial and operational

performance (such as the effect of exchange rate).

However, such changes to the Bonus shall be

immaterial (up to 10%) in comparison to the value of

the variable (performance based) components of the

remuneration of such Senior Executive. If Matomy

restates any of the financial data that were used

in calculating any Bonus (other than restatement

required due to changes in financial reporting

standards), then the applicable Bonus shall be

recalculated using such restated data (the “Restated

Bonus”). The balance between the original Bonus

and the Restated Bonus, if any (the “Balance”) will be

repaid to Matomy by deducting such Balance from

the first amounts payable to such Senior Executive

as Bonus immediately after the completion of such

restatement. To the extent that no Bonus will be

payable to such Senior Executive in that year then the

Balance shall be deducted from the Bonus payable in

the next year.

Notwithstanding the above, if (i) the Senior Executive’s

employment relationship with Matomy terminates

before the Balance is fully repaid to Matomy, than the

Balance shall be deducted from all amounts due and

payable to such Senior Executive in connection with

such termination (subject to the limitations of any

applicable law); and (ii) the Balance is not repaid in

full to Matomy during the two (2) consecutive years

following the restatement, the Senior Executive shall

repay the Balance, or the unpaid portion thereof

(as applicable) pursuant to the terms that shall be

determined by the Board of Directors, based on

recommendation of the Remuneration Committee.

In the event of termination of employment during

the calendar year the amount of the Bonus shall

be calculated and adjusted for the entire year in

accordance with the provisions of this policy, and

thereafter shall be prorated in accordance with the

actual days of employment of the Senior Executive by

the Company during the applicable year (calculated

based on 365 days in a year) and paid to the Senior

Executive in full together with first salary that will be

paid following the approval by the Board of Directors

of the Financial Statement of such applicable year.

Long-term equity-based incentive remuneration

We believe that equity-based incentives tied to

share ownership by Senior Executives are the most

important component of total remuneration. The

equity-based incentives are intended to reward the

Senior Executives for future performance, as reflected

by the market price of Matomy’s ordinary shares

and/or other performance criteria, and are used to

foster a long-term link between Senior Executives’

interests and the interest of the Company and its

Shareholders, as well as to attract, motivate and retain

Senior Executives for the long term by: (i) providing

Senior Executives with a meaningful interest in

Matomy’s share performance; (ii) linking equity-based

remuneration to potential and sustained performance;

and (iii) spreading benefits over time through the

vesting period mechanism. The decision on equity-

based incentives grant shall take into consideration

each Senior Executive’s position, scope of

responsibilities as well as his or her past performance

and contribution to Matomy.

Matomy may issue each Senior Executive options to

purchase the Company’s shares in accordance with

the requirements of Section 102 of the Israeli Income

Tax Ordinance New Version, 5721-1961, as may be

amended from time to time or any other applicable

tax regimes, pursuant to which the Company has

adopted Supplementary Sub Plans Matomy Media

Group Ltd. 2012 Equity Benefit Plan, as amended

(the “EBP”). The EBP and/or any other Sub-Plans

adopted for jurisdictions outside of Israel and/or any

other long-term incentive Plan that the Company

may adopt in the future, as shall be determined by the

Remuneration Committee and the Board of Directors.

The value of the long-term equity-based incentive

remuneration (at the date of grant) per vesting annum

(on a linear basis), for each Senior Executive shall not

exceed: (I) for the CEO – up to 3% of the issued share

capital; (ii) for other Senior Executives – up to 1.5% of

the issued share capital; (iii) for new Senior Executive

(as described below) – up to 1.5% of the issued

share capital. Notwithstanding the aforesaid, the

Remuneration Committee and the Board of Directors

(subject to any additional required approvals) may

decide to deviate from the above caps for the purpose

of a one-time grant of long-term equity based incentive

remuneration in connection with the recruitment of a

new Senior Executive.

In order to align Senior Executive and investors’

interest for creation of long-term value, the long-term

equity based incentive remuneration will include the

following terms:

(i) the amount of options that may be granted shall be

calculated in accordance with the ratio between the

economic value (binomial/B&S) of such options and the

total remuneration of the applicable Senior Executive

in accordance with the ranges stated above;

(ii) the options shall vest in accordance with the terms

of the EBP and may include provisions for acceleration

of vesting in certain events, such as a merger, a

consolidation, a sale of all or substantially all of our

consolidated assets, the sale or other disposition of

all or substantially all of our outstanding shares.Any

amendment in the vesting schedules set out in the

EBP with respect to Senior Executives, will be subject

to receipt of the required approvals, including the

Remuneration Committee and the Board;

(iii) the exercise price shall be determined by the

Remuneration Committee, but in any event shall

not be lower than fair market value as such terms is

defined in the EBP; and

(i) subject to receipt of all the required approvals, the

exercise of the options may be made by a cashless

mechanism and the exercise price may be adjusted for

dividend distribution.

We believe that having successive grants of options

assists in achieving and maintaining the objectives

of equity based remuneration. Therefore, within the

framework of the annual review of the remuneration

of each Senior Executive, the Remuneration

Committee may, based on the Remuneration

Consideration, issue additional options to each Senior

Executive, the quantity of which shall be at the levels

which will range from 2-5% of the Senior Executive’s

potential remuneration.

Other executive benefits

The Other Executive Benefits are used to provide

certain benefits that are mandatory under the



STRATEGICREPORT



OVERVIEW


applicable law (ie, paid vacation, sick leave and pension

plans), as well as to attract, motivate and retain highly

skilled professionals as executive officers and enabling

recruitment of Senior Executives from various

locations and their relocation.

Each Senior Executive shall be entitled to receive

from the company an executive-level car for work and

personal use, including all costs and grossing up of

the tax value. The use of the car shall be subject the

Company’s polices, including with respect to payment

of the excess amount in the event of accidents and

payment of traffic and parking fines.

The Company shall reimburse the business expenses

(that are properly documented and approved in

accordance with Matomy’s internal policies) of its

Senior Executives.

The Company may make available to the Senior

Executive, at the Company’s cost, a company car,

a cellular phone, a laptop computer and internet

connection and a business daily newspaper.

Each Senior Executive is entitled to receive between

18 to 30 paid vacation days for each 12 months of

employment.

Matomy may contribute on behalf of the Senior

Executive, as allowed by the applicable law, to all or

part of the following funds: (i) manager’s insurance

program and/or pension programs with pension funds;

(ii) work disability insurance; and (iii) education fund

(“Keren Hishtalmut”). All the payments and allowances

will be calculated with respect to the entire Base

Salary.

The benefits described above shall not constitute

part of the remuneration for any purpose including

with respect to payments or calculations relating to

severance payments, pension entitlements allocation

to managers’ insurance, education fund, redemption of

vacation days, etc.

Retirement and termination of service or

employment arrangements

Matomy may provide post-service or employments

benefits, remuneration or protection to its Senior

Executives (the “Retirement Benefits”). The

Retirement Benefits are used to attract and retain

highly skilled professional executive officers, as well as

express recognition of Senior Executives’ contribution

to Matomy during their tenure with the Company.

The retirement/termination arrangements may include

one or more of the following, as may be approved

by the Remuneration Committee and the Board of

Directors (unless the termination is in circumstances

that negate the payment of a severance amount

pursuant to the applicable law):

(i) Advance notice of termination — The advance

notice shall be as follows (the “Advance Notice

Period”):

(i) up to a maximum of six (6) months for the CEO;

and (ii) up to a maximum of four (4) months for the

other Senior Executives. The Senior Executives shall

be obligated to work during such period, but the

Company may decide, at its sole discretion, to waive

actual work during that period, in whole or in part.

(ii) Adjustment payments — A Senior Executive may

be entitled to adjustment payments as follows: (i)

up to a maximum of six (6) months for the CEO; and (ii)

up to a maximum of four (4) months for the other

Senior Executives, provided that any overlap between

the Advance Notice Period during which the Senior

Executive is not working will be accounted for the

purpose of calculating the total adjustment payment

and deducted therefrom. The adjustment payments

will be based on the employment term of each Senior

Executive with the Company.

The Retirement Benefits will be determined based on

the circumstances of such retirement or termination,

the terms of service or employment of the Senior

Executive, his or her remuneration package during

such period, market practice in the relevant geographic

location, Matomy’s performance during such period

and the Senior Executive’s contribution to Matomy

achieving its goals and maximising its profits.

The Remuneration Committee and the Board of

Directors may, at their discretion, determine not to

provide some or any Retirement Benefits, in the event

of termination for “cause”, which will be as defined in

the applicable arrangement with the Senior Executive.

In addition, the Remuneration Committee and the

Board of Directors may determine that any or all

Retirement Benefits will be granted in consideration

for and/or conditional upon or subject to the

fulfillment of one or more conditions or undertakings

by the Senior Executive (ie, confidentiality and/or non-

compete obligations).

Compensation of Directors

The Company aims to attract and retain highly

talented Non-Executive Directors with the

appropriate educational background, qualifications,

skills, expertise, prior professional experience

and achievements, by offering them a competitive

remuneration program.

Directors that are employees of Matomy or otherwise

non-independent, ie, appointed by or representing a

shareholder or a group of Shareholders of Matomy,

shall not be entitled to any Directors’ fees or other

remuneration for their services as a Director, except

for reimbursement of certain business expenses

associated with service as a Director, such as payment

of travel and lodging expenses when attending

meetings of the Board of Directors outside their

country of usual residence, subject to the prior

approval of Matomy.

The External Directors and the Independent Directors

shall be entitled to the fees and reimbursement of

expenses payable pursuant to the Israeli Companies

Law and the regulations promulgated pursuant thereto

(as may be updated from time to time). The fees

payable to External Directors and the Independent

Directors shall be based on the relative method as

described in the regulations promulgated pursuant to

the Israeli Companies Law.

The Directors shall not be entitled to Bonus or Equity-

Based Incentive Remuneration with regard to their

service as Directors.

D&O insurance; indemnification and release

The Company releases its Directors and Senior

Executives from liability and provides them with

indemnification to the fullest extent permitted by the

Israeli Companies Law and the Company’s Articles of

Association, and provides them with indemnification

and release agreements for this purpose (the

“Indemnification and Release Agreement”). In addition,

Directors and Senior Executives are covered by a

D&O liability insurance policy (“D&O Insurance”) with

liability limits that shall not exceed $10,000,000 per

event and subject of payment of premium at market

range. The Company may purchase D&O insurance

policies covering the liability of its Directors and

officers as same shall be from time to time (including

Directors or officers that are deemed a controlling

shareholder of the Company or that are associated

with the controlling shareholder(s) of the Company)

provided that (i) the purchase of the such policy is

on market terms and does not have material adverse

effect on Matomy’s assets liabilities or profitability,

and (ii) such purchase has been approved by the

Remuneration Committee.

The Remuneration Committee and the Board of

Directors shall review the Indemnification and Release

Agreement and the D&O Insurance from time to time,

in order to ascertain whether they provide appropriate

coverage.



STRATEGICREPORT



OVERVIEW


Exhibit IQualitative goals — for the purposes of determining entitlement to annual bonus

• Implementation or completion of specified projects or processes;

• customer satisfaction;

• productivity;

• the formation of joint ventures;

• research or development collaborations, or the completion of other transactions;

• market share;

• completion of acquisitions of assets;

• acquisitions of businesses or companies;

• completion of divestitures and asset sales;

• greater geographic and product diversification;

• enhancing Matomy’s succession planning and performance-driven culture by adding new talent in key roles;

• defending pending litigation matters and protecting Matomy’s intellectual property;

• launching research and development initiatives;

• expansion of customer and strategic partner base;

• production performance;

• creation and advancement of technology;

• development and management of the employee base;

• maintenance of worldwide regulatory compliance;

• improving technical achievements;

• adherence to ethical standards; and

• risk management.

Directors’ Responsibilities Statement

Directors’ responsibilities statement in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the Group Financial Statements and approve

them in accordance with applicable laws and regulations.

Matomy’s Articles of Association require the Directors to prepare Group Financial Statements for each financial

year. The consolidated financial statements have been prepared in accordance with accounting principles generally

accepted in the United Sates (“US GAAP”).

Under Matomy’s Articles of Association, the Directors must not approve the Financial Statements unless they are

satisfied that they give a true and fair view of the state of affairs of the Group and of their profit or loss for that

period.

In preparing each of the Group Financial Statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether the consolidated financial statements have been prepared in accordance with US GAAP

principles; and

• prepare the Financial Statements on a going-concern basis unless it is inappropriate to presume that the

Group will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain

Matomy’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and

enable them to ensure that its Financial Statements comply with the Companies Act 2006. They have general

responsibility for taking such steps as are reasonably open to them to safeguard the assets of Matomy and to

prevent and detect fraud and other irregularities.



STRATEGICREPORT



OVERVIEW


Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’

Report, Directors’ Remuneration Report and Corporate Governance Report that complies with that law and those

regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included

on the Matomy website. Legislation in the UK governing the preparation and dissemination of financial statements

may differ from legislation in other jurisdictions. The Board considers that the Annual Report and Financial

Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for

shareholders to assess Matomy’s performance, business model and strategy.

Directors’ responsibilities statement pursuant to Disclosure and Transparency Rule 4.1.12R

Each of Matomy’s Directors confirms that, to the best of his or her knowledge:

• the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and

fair view of the assets, liabilities, financial position and profit or loss of Matomy and the undertakings included in the

consolidation taken as a whole; and

• the management report, which comprises the Directors’ Report and the Strategic Report, includes a fair review of

the development and performance of the business and the position of Matomy and the undertakings included in the

consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

IDO BARASH

Company Secretary



STRATEGICREPORT



OVERVIEW


Financial Statements4

94 Report of Independent Auditors

96 Consolidated Balance Sheets

98 Consolidated Statement

of Operations

99 Consolidated Statement of

Changes in Shareholder Equity

100 Consolidated Statements

of Cash Flows

103 Notes to Consolidated

Financial Statement

133 Shareholder information


We have audited the accompanying

consolidated financial statements

of Matomy Media Group Ltd. (“the

Company”) and its subsidiaries, which

comprise the consolidated balance sheets

as of 31 December 2017 and 2016, and

the related consolidated statements of

operations, changes in

shareholders` equity and cash flows for the

years then ended, and the related notes to

the consolidated financial statements.

Management’s Responsibility for the

Financial Statements

Management is responsible for the

preparation and fair presentation of

these financial statements in conformity

with U.S. generally accepted accounting

principles; this includes the design,

implementation and maintenance of

internal control relevant to the preparation

and fair presentation of

financial statements that are free of

material misstatement, whether due to

fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion

on these financial statements based on

our audits. We conducted our audits

in accordance with auditing standards

generally accepted in the United States.

Those standards require that we plan and

perform the audit to obtain reasonable

assurance about

whether the financial statements are free

of material misstatement.

An audit involves performing rocedures

to obtain audit evidence about the

amounts and disclosures in the financial

statements. The procedures selected

depend on the auditor’s judgment,

including the assessment of the risks of

material misstatement of the financial

Report of Independent Auditors

statements, whether due to fraud or

error. In making those risk assessments,

the auditor considers internal control

relevant to the entity’s preparation and fair

presentation of the financial statements in

order to design audit procedures that are

appropriate in the circumstances, but not

for the purpose of expressing an opinion

on the effectiveness of the entity’s internal

control. Accordingly, we express no such

opinion. An audit also includes evaluating

the appropriateness of

accounting policies used and the

reasonableness of significant accounting

estimates made by management, as well as

evaluating the overall presentation of the

financial statements.

We believe that the audit evidence we

have obtained is sufficient and appropriate

to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated

financial statements referred to above

present fairly, in all material respects,

the consolidated financial position of

the Company and its subsidiaries at

31 December 2017 and 2016 and the

consolidated results of their operations

and their cash flows for the years then

ended in conformity with U.S. generally

accepted accounting principles.

KOST FORER GABBAY & KASIERERA Member of Ernst & Young Global

March 28, 2018Tel Aviv, Israel

STRATEGICREPORT



OVERVIEW


Consolidated Balance Sheets

31 December

2017 2016

ASSETS

CURRENT ASSETS:

Cash and cash equivalents $ 28,827 $ 21,671

Trade receivables, net 33,353 54,900

Domains held for sale - 9,965

Other receivables and prepaid expenses 7,306 5,502

Total current assets 69,486 92,038

LONG-TERM ASSETS:

Property and equipment, net 8,796 9,032

Domains 10,797 -

Investment in affiliated companies 43 1,957

Other intangible assets, net 8,397 36,577

Goodwill 83,768 97,015

Other assets 161 398

Total long-term assets 111,962 144,979

Total assets $ 181,448 $ 237,017

Liam GalinPresident & Chief Executive Officer

28 March 2018Date of approval of the financial statements

Keren FaragChief Financial Officer

STRATEGICREPORT



OVERVIEW

Consolidated Balance Sheets

31 December

2017 2016CURRENT LIABILITIES:

Liability to non-controlling interest $ 41,547 $ 13,776

Short-term bank credit and current maturities of bank loans 17,795 8,960

Trade payables 29,234 43,982

Contingent payment obligation related to acquisitions 1,272 7,166

Employees and payroll accrual 4,107 4,953

Accrued expenses and other liabilities 9,539 4,964

Total current liabilities 103,494 83,801

LONG-TERM LIABILITIES:

Deferred tax liabilities 3,411 11,148

Contingent payment obligation related to acquisitions 444 10,192

Bank loans, net of current maturities 3,001 6,661

Other liabilities 1,208 821

Total long-term liabilities 8,064 28,822

REDEEMABLE NON-CONTROLLING INTEREST - 23,691

EQUITY:

Matomy Media Group Ltd. shareholders' equity:

Ordinary shares 252 247

Additional paid-in capital 85,931 101,066

Accumulated other comprehensive loss (3,174) (3,174)

Retained earnings (accumulated deficit) (7,196) 8,795

Treasury shares (6,231) (6,231)

Total Matomy Media Group Ltd. shareholders' equity 69,582 100,703

Non-controlling interest 308 -

Total equity 69,890 100,703

Total liabilities and equity $ 181,448 $ 237,017

The accompanying notes are an integral part of the consolidated financial statements.

(US dollars in thousands)(US dollars in thousands)


Consolidated Statements of OperationsUS dollars in thousands except earnings per share data


2017 2016

Revenues $ 245,056 $ 276,631

Cost of revenues 191,375 219,715

Gross profit 53,681 56,916

Operating expenses

Research and development 10,980 9,297

Selling and marketing 25,804 31,121

General and administrative 13,883 18,209

Impairment, net of change in fair value of contingent consideration 17,181 (425)

Restructuring costs 924 -


Total operating expenses 67,859 58,202

Operating loss (14,178) (1,286)

Financial expenses, net 2,536 2,057

Loss before taxes on income (16,714) (3,343)

Tax on income (benefit) (2,145) 4,689

Loss before equity losses of affiliated companies (14,569) (8,032)

Gain on remeasurement to fair value and equity gains (equity losses) of affiliated companies, net

135 (73)

Net loss (14,434) (8,105)

Net income attributable to redeemable non-controlling interests in subsidiaries

(1,466) (487)

Net income attributable to other non-controlling interests in subsidiary (23) -

Net loss attributable to Matomy Media Group Ltd. before accretion of

redeemable non-controlling interest $ (15,923) $ (8,592)

Basic and diluted loss per ordinary share $ (0.35) $ (0.13)

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Net

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(15,

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f 31

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$252

$85,

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$(3,

174)

$(7,

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$(6,

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$69,

582

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$69,

890

(US

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sta

tem

ents

.

STRATEGICREPORT



OVERVIEW


Consolidated Statements of Cash Flows(US dollars in thousands)


2017 2016Cash flows from operating activities

Net loss $ (14,434) $ (8,105)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization 14,397 16,511

Stock-based compensation 1,374 1,854

Impairment of intangible assets, goodwill and capitalized research and development 27,144 396

Change in deferred tax, net (7,802) (1,039)

Change in accrued interest and effect of foreign exchange differences on long term loans 516 (266)

Gain on remeasurement to fair value and equity gains (equity losses) of affiliated companies, net (135) 73

Decrease in trade receivables 21,981 3,268

Increase in domains held for sale - (4,151)

Increase in other receivables and prepaid expenses (1,540) (1,664)

Decrease (increase) in other assets 58 (82)

Decrease in trade payables (14,814) (5,183)

Changes in fair value of contingent payment obligation related to acquisitions recognized in earnings (9,963) (821)

Accretion of contingent payment obligation related to acquisitions 359 712

Increase (decrease) in employees and payroll accruals (846) 516

Increase (decrease) in accrued expenses and other liabilities 2,078 (2,243)


Other (5) 55

Net cash provided by (used in) operating activities 17,455 (169)


2017 2016

Cash flows from investing activities:

Sale of activity 5,642 -

Purchase of property and equipment (322) (1,653)

Purchase of domains (1,002) -

Proceeds from sale of domains 160 -

Capitalization of research and development costs (3,901) (5,106)

Purchase of technology and database - (158)

Investments in subsidiaries net of cash acquired (141) -

Sale of investment in affiliated company 1,823 -

Net cash provided by (used in) investing activities $ 2,259 $ (6,917)

*The accompanying notes are an integral part of the consolidated financial statements.

STRATEGICREPORT



OVERVIEW


Consolidated Statements of Cash Flows(US dollars in thousands)


2017 2016

Cash flows from financing activities:

Short-term bank credit, net $ 11,555 $ 2,093

Receipt of bank loans 2,000 7,021

Repayment of bank loans (8,937) (6,966)

Additional payments related to previous acquisitions, net (3,228) (624)

Acquisition of redeemable and non-redeemable non-controlling interest (10,994) (565)

Dividend paid to redeemable non-controlling interest (3,491) (1,863)

Exercise of options and warrants 527 2,382

Net cash provided by (used in) financing activities (12,568) 1,478

Effect of exchange rate differences on cash 10 8

Increase (decrease) in cash and cash equivalents 7,156 (5,600)

Cash and cash equivalents at beginning of year 21,671 27,271

Cash and cash equivalents at end of year $ 28,827 $ 21,671

Supplemental disclosure of cash flow activities

Cash paid during the year for:

Income taxes, net $ 5,263 $ 6,336

Interest paid $ 997 $ 642

Notes to Consolidated Financial Statements(US dollars in thousands)

The accompanying notes are an integral part of the consolidated financial statements.

NOTE 1: GENERAL

a. Matomy Media Group Ltd together with its subsidiaries (collectively - “the Company”) offers and provides a portfolio of

proprietary programmatic data-driven platforms focusing on two core activities of domain monetization and mobile digital

advertising to advertisers, advertising agencies, Apps developers, domain owners through access to digital media, via a

vast chain of direct and indirect media partners, such as websites, mobile apps and video. With this large and diversified

network of digital media source relationships, the Company reduces potential dependency on any one digital media

source and can thereby give its customers broad reach, liquidity and choice. The focus on two core activities of domain

monetization and mobile digital advertising is a result of the strategic focus plan adopted by the Company in 2017, shifting

the key business focus away from its non-core business to these two core activities.

The Company through its proprietary programmatic technological platforms provides its customers with access to a wide

range of digital media channels, and enables customized performance and programmatic solutions supported by big data

analytics, optimization technology, business intelligence, programmatic media buying and Real-Time-Bidding (RTB) on

mobile and web, empowering advertising and media partners to meet their digital goals, which include user acquisition and

revenue results for both advertisers and media partners. The Company also provides a media management platform (SSP)

and demand management platform (DSP) offering publishers or advertisers end to end solutions.

Matomy Media Group Ltd. was incorporated in 2006. The Company’s markets are located primarily in the United States

and Europe.

The Company’s shares are traded in the “London Stock Exchange and also on the Tel Aviv Stock Exchange.

b. Sale of an activity:

On 29 June 2017 the Company entered into an agreement for the sale of its intangible assets and transfer of all

employees related to part of its non-core business, for a total consideration of up to $10,892, comprised of $5,642 in

cash and a contingent consideration up to $5,250 based on future business performance.

The sale resulted in a gain of $913, which is included in operating results for the year ended 31 December 2017.

Following the consummation of this transaction, the Company has exited from the legacy web display, social and search

and virtual currency media channels, which are deemed non-core activities. Following the sale, these media channels

ceased to be part of the Company’s activity.

The Company elected to recognize the future proceeds when the contingency is resolved and therefore the contingent

consideration amount was not accounted for as part of the gain.

STRATEGICREPORT



OVERVIEW


NOTE 1: GENERAL (Cont.)

Gain from sale of activity:

Goodwill $ (4,660)

Other intangible assets, net (69)

Consideration $ 5,642

Gain from sale of activity $ 913

c. In February 2018, the Company completed a public offering in Israel of Convertible Bonds (the “Bonds”). Through

the issuance of the Bond, the Company raised a total gross consideration of ILS 103 million (approximately $29,930)

issuing a total of 101,000 units of Bonds, which bear a coupon of 5.5% per annum, payable semi-annually on June 30

and December 31 of each of the years 2018 to 2021 (inclusive). Transaction costs amounted to $1,681. The principal

of the Bonds, denominated in ILS, will be repaid in two equal annual instalments commencing on December 2020. The

Bonds will be convertible into ordinary shares of the Company, at the discretion of the holders, up to ten (10) days prior

to the final redemption date (ie December 21, 2021). The conversion price is subject to adjustment in the event that the

Company effects a share split or reverse share split, rights offering or a distribution of bonus shares or a cash dividend.

The Company may redeem the Bonds upon delisting of the Bonds from the TASE, subject to certain conditions.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted

in the United Sates (“US GAAP”). The significant accounting policies are applied in the preparation of the consolidated

financial statements on a consistent basis, as follows:

a. Principles of consolidation:

The consolidated financial statements include the accounts of Matomy Media Group Ltd and its subsidiaries.

Intercompany transactions and balances have been eliminated upon consolidation.

Changes in the parent’s ownership interest in a subsidiary with no change of control are treated as equity transactions,

with any difference between the amount of consideration paid and the change in the carrying amount of the non-

controlling interest recognised in equity.

Redeemable non-controlling interests are classified as mezzanine equity, separate from permanent equity, on the

consolidated balance sheets and measured at the higher of their redemption amount or the non-controlling interest

book value, in accordance with the requirements of Accounting Standards Codification (“ASC”) 810 “Consolidation” and

ASC 480-10-S99-3A, “Distinguishing Liabilities from Equity”.

b. Use of estimates:

The preparation of the consolidated financial statements in conformity with US GAAP requires management to

make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments

and assumptions used are reasonable based upon information available at the time they are made. These estimates,

judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets

and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the

reporting period. Actual results could differ from those estimates.

On an ongoing basis, the Company’s management evaluates estimates, including those related to accounts receivable,

fair values of financial instruments, fair values and useful lives of intangible assets, contingent payment obligation

related to acquisitions, liability to non-controlling interest, fair values of stock-based awards, deferred taxes and

income tax uncertainties and contingent liabilities. Such estimates are based on historical experience and on various

other assumptions that it believes to be reasonable, the results of which form the basis for making judgments about the

carrying values of assets and liabilities.

c. Financial statements in US dollars:

The US dollar is the currency of the primary economic environment in which Matomy Media Group and its subsidiaries

operate. A substantial portion of the revenues and expenses of the Company are generated in US dollars. In addition,

financing activities including equity transactions and cash investments are made in US dollars, which is prepared in US

dollars. Thus, the functional and reporting currency of the Company is the US dollar.

Accordingly, monetary accounts maintained in currencies other than the US dollar are remeasured into US dollars in

accordance with ASC 830, “Foreign Currency Matters”. All transaction gains and losses of the remeasured monetary

balance sheet items using exchange rates in effect at the balance sheet date are reflected in the statements of income

as financial income or expenses, as appropriate.

d. Cash and cash equivalents:

Cash equivalents are short-term highly liquid investments that are readily convertible into cash with original maturities

of three months or less at acquisition.

e. Accounts receivable and allowance for doubtful accounts:

Accounts receivable are stated at realisable value, net of an allowance for doubtful accounts. The Company evaluates

specific accounts where information indicates the Company’s customers may have an inability to meet financial

obligations. Allowance for doubtful accounts as of 31 December 2017 and 2016 were $ 1,648 and $ 1,704, respectively.

During the years ended 31 December 2017 and 2016 bad debt expenses were $1,958 and $ 1,794, respectively, and

the write offs of balances included in allowances for doubtful accounts amounted to $ 1,884 and $ 2,806 in the years

ended 31 December 2017 and 2016, respectively. During 2017 recoveries amounted to $ 130 of amounts previously

included allowance for doubtful accounts.

f. Property and equipment, net:

Property and equipment are stated at cost, net of accumulated depreciation and amortisation. Depreciation is

calculated using the straight-line method over the estimated useful lives of the assets, at the following annual rates:

%

Computers and software 33

Office furniture and equipment 6-10

Electronic equipment 10-20

Capitalized research and development costs 33

Leasehold improvements Over the shorter of related lease period

or the life of the improvement

g. Impairment of long-lived assets and intangible assets subject to amortisation:

Property and equipment and intangible assets subject to amortization are reviewed for impairment in accordance

with ASC 360, “Accounting for the Impairment or Disposal of Long-Lived Assets”, and ASC 350, “Intangibles -

Goodwill and other” whenever events or changes in circumstances indicate that the carrying value of an asset may

not be recoverable. The recoverability of these assets is measured by comparing the carrying amounts to the future

undiscounted cash flows the assets are expected to generate. If property and equipment and intangible assets are

considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset

exceeds its fair market value.

STRATEGICREPORT



OVERVIEW


NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)

In determining the fair values of long-lived assets for purpose of measuring impairment, the Company’s assumptions

include those that market participants will consider in valuations of similar assets.

During the year ended 31 December 2017, following the recent strategic restructuring, consolidation of certain

business units and considering the current market terms, including adequacy of certain technological products, the

Company performed an impairment review of intangible assets that were recognized in connection with the acquisition

of Optimatic and Avenlo, which resulted in impairment charge of $18,139.

In connection with the restructuring plan, the Company recorded in 2017 an impairment of $152 relating to disposal of

certain office furniture and equipment.

h. Goodwill and other intangible assets:

Goodwill reflects the excess of the purchase price of business acquired over the fair value of net identifiable assets

acquired. Goodwill and indefinite intangible assets are not amortized but instead are tested for impairment, in

accordance with ASC 350, at least annually at December 31 each year, or more frequently if events or changes in

circumstances indicate that the carrying value may be impaired.

The Company adopted in 2017, the Financial Accounting Standards Board (“FASB”) authoritative guidance, which

simplifies the subsequent measurement of goodwill. The standard eliminates Step 2 of the current goodwill impairment

test, which requires companies to determine the implied fair value of goodwill when measuring the amount of impairment

loss. Under the new standard, goodwill impairment is measured as the amount by which a reporting unit’s carrying value

exceeds its fair value, with the loss limited to the total amount of goodwill allocated to that reporting unit.

Following completion of Matomy’s strategic restructuring to focus on programmatic mobile and domain monetization,

the Company has also streamlined the way it measures its results to reflect such operational focus, which consists

of one operating segment, comprised of three reporting units – Domain Monetisation, Mobile (“Mobfox”) and non-

core. The Company determined that certain indicators of potential impairment existed during 2017, which triggered

goodwill impairment analysis for its reporting units.

The Company determines the fair value of each reporting unit using the income approach, which utilizes a discounted

cash flow model, as it believes that this approach best approximates the reporting unit’s fair value. Judgments and

assumptions related to revenue, gross margin, operating income, future short-term and long-term growth rates,

weighted average cost of capital, interest, cash flows, and market conditions are inherent in developing the discounted

cash flow model. The Company considers historical rates and current market conditions when determining the

discounted and growth rates to use in its analyses. If these estimates or their related assumptions change in the future,

the Company may be required to record impairment charges for its goodwill. As a result of the annual impairment test

in 2016, no impairment loss was recorded. During 2017 the Company recorded goodwill impairment charges of $9,005

related to its non-core reporting unit.

The majority of the inputs used in the discounted cash flow model to determine the fair value of the reporting units are

unobservable and thus are considered to be Level 3 inputs.

Intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives.

Customer relationships and trade name are amortized over their estimated useful lives in proportion to the economic

benefits realized. This accounting policy results in accelerated amortization of such intangible assets as compared to

the straight-line method. Technology and database are amortised over their useful lives on a straight-line basis.

i. Investments in affiliated companies:

Investments in companies in which the Company holds more than 20% (and less than 50%) or has the ability to exercise

significant influence over their operating and financial policies are measured using the equity method.

In December 2017 the Company sold its investment in Adperio for a total consideration of $1,972, comprised of $1,823

in cash and $149 which is, held in escrow for additional year. The Company estimates that 50% of the escrow amount

will be received, and therefore an amount of $75 is included in other receivables and prepaid expenses in the balance

sheet. The sale resulted in a gain of $7, which is included in operating results for the year ended 31 December 2017.

The Company’s investments in affiliated companies are reviewed for impairment whenever events or changes in

circumstances indicate that the carrying amount of the investment may not be recoverable. For the years ended 31

December 2017 and 2016, no impairment losses were recorded.

j. Severance pay:

Effective September 2007, the Company’s agreements with employees in Israel are generally in accordance with

section 14 of the Severance Pay Law - 1963 which provide that the Company’s contributions to severance pay fund

shall cover its entire severance obligation with respect to period of employment subsequent to September 2007.

Upon termination, the release of the contributed amounts from the fund to the employee shall relieve the Company

from any further severance obligation and no additional payments shall be made by the Company to the employee.

As a result, the related obligation and amounts deposited on behalf of such obligation are not stated on the balance

sheet, as the Company is legally released from severance obligation to employees once the amounts have been

deposited, and the Company has no further legal ownership on the amounts deposited.

Severance expenses during the years ended 31 December 2017 and 2016 were $ 1,063 and $ 1,311, respectively.

k. Employee benefit plan:

The Company’s U.S. operations maintain a retirement plan (the “U.S. Plan”) that qualifies as a deferred salary arrangement

under Section 401(k) of the Internal Revenue Code. Participants in the U.S. Plan may elect to defer a portion of their

pre-tax earnings, up to the Internal Revenue Service annual contribution limit. The Company matches 25% of each

participant’s contributions, up to 6% of employee deferral. There is also a vesting period for the employer match, which

is based on the employee date of hire and years of service. Contributions to the U.S. Plan are recorded during the year

contributed as an expense in the consolidated statement of operations.

Total employer 401(k) contributions for the years ended 31 December 2017 and 2016 were $ 79 and $ 54, respectively.

l. Revenue recognition:

The Company provides smart marketing services through customized programmatic solutions supported by internal

media capabilities, big data analytics, and optimization technology, Matomy empowers advertising and media partners

to meet their evolving growth-driven goals across several media channels, including core mobile, domain monetisation

and non-core email and video, for multiple industry verticals on a wide variety of devices and operating systems.

The Company generates a large part of its revenues when its customers’ ad campaigns achieve certain predefined

measurable and validated results on a per-action basis such as cost-per-acquisition (“CPA”), cost-per-sale (“CPS”), cost-

per-lead (“CPL”), cost-per-download (“CPD”), cost-per-view (“CPV”), cost-per-install (“CPI”) and pay per call (“PPC”). The

Company also generates revenues based on a metric that predefines a certain amount of ad views based on a cost per

thousand advertising impressions (“CPM”).

The Company recognises revenue when all four of the following criteria are met: persuasive evidence of an

arrangement exists; service has been provided; customer fees are fixed or determinable; and collection is reasonably

assured. Revenue arrangements are evidenced by executed terms and conditions as part of an insertion order, with an

advertiser or an advertising agency.

The Company evaluates whether its revenues should be presented on a gross basis, which is the amount that a

customer pays for the service, or on a net basis, which is the customer payment less amounts the Company pays to

STRATEGICREPORT



OVERVIEW



suppliers. In making that evaluation, the Company considers indicators such as whether the Company is the primary

obligor in the arrangement and assumes risks and rewards as a principal or an agent, including the credit risk, whether

the Company has latitude in establishing prices and selecting its suppliers and whether it changes the products or

performs part of the service.

The Company records deferred revenues for unearned amounts received from customers for services that were

not recognised as revenues. Deferred revenues amounted to $ 1,059 and $ 1,737 at 31 December 2017 and 2016,

respectively, and are included within accrued expenses and other liabilities on the balance sheets.

m. Cost of revenues:

Cost of revenues consists primarily of direct media costs associated with the purchase of digital media, data centre

costs, amortisation of technology and internally developed software and allocation of attributable personnel and

associated costs.

n. Comprehensive income:

The Company accounts for comprehensive income in accordance with ASC 220, “Comprehensive Income”.

Comprehensive income generally represents all changes in shareholders’ equity during the period except those

resulting from investments by, or distributions to, shareholders. The Company’s items of other comprehensive income

relate to foreign currency translation adjustments, which were immaterial for the years 2017 and 2016.

o. Research and development costs:

Research and development costs are charged to the statement of operations as incurred, except for certain costs

relating to internally developed software, which are capitalized and amortized on a straight-line basis over their

estimated useful life once the asset is ready for its intended use.

p. Internally developed software:

The Company capitalizes certain internal software development costs, consisting of direct labor associated with

creating the internally developed software. Software development projects generally include three stages: the

preliminary project stage (all costs expensed as incurred), the application development stage (costs are capitalized)

and the post implementation/operation stage (all costs expensed as incurred). The costs capitalized in the application

development stage primarily include the costs of designing the application, coding and testing of the system.

Capitalized costs are amortized using the straight line method over the estimated useful life of the software,

generally 3 years, once it is ready for its intended use. The Company believes the straight line recognition method

best approximates the manner in which the expected benefit will be derived. During 2017 and 2016, the Company

capitalized software development costs of $ 3,901 and $ 5,106, respectively. Amortization expense for the related

capitalized internally developed software in 2017 and 2016 totaled $ 2,757 and $ 1,179, respectively, and is included in

cost of revenues in the accompanying consolidated statements of operations. Management evaluates the useful lives of

these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could

impact the recoverability of these assets. As a result of changes in circumstances in the non-core activity, management

decided to abandon certain projects and therefore recorded an impairment charge of $ 447 in 2017.

Capitalized internally developed software of $ 6,755 and $ 6,058 are included in property and equipment in the

consolidated balance sheets as of 31 December 2017 and 2016, respectively.

q. Accounting for stock-based compensation:

The Company accounts for stock-based compensation under ASC 718, “Compensation - Stock Compensation”, which

requires the measurement and recognition of compensation expense based on estimated grant date fair values for

all share-based payment awards made to employees and directors. ASC 718 requires companies to estimate the fair

value of equity-based awards on the date of grant, using an option-pricing model. The Company elected to account for

forfeitures when they occur and adopted this change on a modified retrospective basis.

The Company recognizes compensation expenses for the value of its awards, which have graded vesting based on

service conditions, using the accelerated attribution method, over the requisite service period of each of the awards

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to

Employee Share-Based Payment Accounting (“ASU 2016- 09”). The update simplifies several aspects of accounting

for employee share-based payment transactions for both public and nonpublic entities, including the accounting for

income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash

flows. The ASU is effective for annual reporting periods beginning after 15 December 2016, including interim periods

within those annual reporting periods, early adoption is permitted. The Company adopted the standard commencing 1

January 2017. The impact of the adoption was to reduce retained earnings and to increase additional paid-in capital by

$ 68 as of 1 January 2017.

1. The Company estimates the fair value of stock options granted to its employees and directors using the Black-

Scholes-Merton option-pricing model. The Black-Scholes-Merton model requires a number of assumptions, of which

the most significant are the fair value of its ordinary shares, the expected stock price volatility, expected option term,

risk-free interest rates and expected dividend yield, which are estimated as follows:

• Volatility - the expected share price volatility was based on the historical equity volatility of the ordinary shares of

comparable companies that are publicly traded and the Company’s historical equity volatility.

• Expected option term - the expected term of the options represents the period of time that the options are

expected to be outstanding and is based on the simplified method, which is the midpoint between the vesting date and

the end of the contractual term of the option.

• Risk-free interest - the risk-free interest rate assumption is based on the yield from zero-coupon US government

bonds appropriate for the expected term of the Company’s employee stock options.

• Dividend yield - the Company estimates its dividend yield based on historical pattern, however the Company

currently intends to invest funds in business development and not to distribute dividends.

STRATEGICREPORT



OVERVIEW



The fair value of the Company’s stock options granted to employees and directors for the years ended 31 December

2017 and 2016 was estimated using the following weighted average assumptions:


2017 2016

Volatility 47% 43%

Expected option term (in years) 5.9 6.3

Risk-free interest rate 1.97% 1.3%

Dividend yield 0% 0%

2. The Company estimates the fair value of restricted share units (“RSUs”) granted to employees according to the fair

value of the Company’s share at the grant date.

r. Income taxes

The Company is subject to income taxes in Israel, Germany, the United States and numerous other jurisdictions. The

Company accounts for income taxes in accordance with ASC 740, “Income Taxes”. This topic prescribes the use of

the liability method, whereby deferred tax asset and liability account balances are determined based on differences

between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and

laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if

necessary, to reduce deferred tax assets to the amount that is more likely than not to be realised. In such determination,

the Company considers future reversal of existing temporary differences, future taxable income, tax planning strategies

and other available evidence in determining the need for a valuation allowance.

The Company implements a two-step approach to recognise and measure uncertain tax positions. The first step is

to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available

evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be

sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure

the tax benefit as the largest amount that is more than 50% (on a cumulative basis) likely to be realised upon ultimate

settlement. The Company classifies interest incurred payable to tax authorities as interest expenses.

s. Concentrations of credit risks:

Financial instruments that could potentially subject the Company to concentrations of credit risk consist principally

of cash and cash equivalents and trade receivables.

Cash and cash equivalents are managed in major banks, mainly in Israel, the United States, United Kingdom and

Germany.

The Company’s trade receivables are derived from sales to customers located mainly in Europe and the United States.

The Company performs ongoing credit evaluations of its customers and a specific allowance for doubtful accounts is

provided.

t. Fair value of financial instruments:

The Company applies ASC 820, “Fair Value Measurements and Disclosures”. Under this standard, fair value is defined

as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly

transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs

used in measuring fair value that maximises the use of observable inputs and minimises the use of unobservable

inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that

market participants would use in pricing the asset or liability developed based on market data obtained from sources

independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the

assumptions market participants would use in pricing the asset or liability developed based on the best information

available in the circumstances.

A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the

valuation methodologies in measuring fair value:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at

the measurement date.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either

directly or indirectly.

Level 3 - Unobservable inputs for the asset or liability.

u. Basic and diluted earnings per share:

Basic earnings per share are computed based on the weighted average number of ordinary shares outstanding during

each year. Diluted earnings per share are computed based on the weighted average number of ordinary shares

outstanding during each year, plus dilutive potential ordinary shares outstanding during the year, in accordance with

ASC 260, “Earnings per Share”.

v. Treasury shares:

In accordance with ASC 505-30, the Company shares held by the Company and/or its subsidiaries are recognized

at cost of purchase and presented as a deduction from equity. Any gain or loss arising from a purchase, sale, issue or

cancellation of treasury shares is recognized directly in equity.

w. Domains:

During the year ended 31 December 2017, the Company changed its long-term strategy regarding the manner it relates

to domains which were previously held for sale and accordingly reclassified the domains from current assets to non-

current assets with indefinite useful lives. As of the date of reclassification, no impairment losses were recorded in

accordance with ASC 350, “Intangibles - Goodwill and other”.

Since the domains have no expiry date, management believes that these intangible assets have indefinite useful lives.

Intangible assets with indefinite useful lives are not amortized and are tested for impairment annually or whenever

there is an indication that the intangible asset may be impaired.

x. Change in accounting policies:

The Company changed its accounting policy regarding the presentation of the adjustment to the net income

attributable to Matomy Media Group Ltd. as a result of accretion of redeemable non-controlling interest. According

to the new accounting policy, the Company presents the accretion amount in the calculation of the loss per share

in the notes of the financial statements, compared to the previous presentation on the face of the consolidated

statements of operations, since Company’s management believes that reflecting the effects of the accretion as

an adjustment to income available to Matomy Media Group Ltd. in the loss per share note is a more appropriate

presentation. The presentation of prior years was changed to conform to current year’s presentation. The

reclassification had no effect on previously reported net loss or shareholders’ equity.

STRATEGICREPORT



OVERVIEW



y. Reclassification:

Certain amounts in prior years’ financial statements have been reclassified to conform to the current year’s

presentation. The reclassification had no effect on previously reported net loss or shareholders’ equity.

z. Recently issued accounting standards:

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU

2014-09) “Revenue from Contracts with Customers.” ASU 2014-09 supersedes the revenue recognition requirements

in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when they transfer promised goods

or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in

exchange for those goods or services. As currently issued and amended, ASU 2014-09 is effective for annual reporting

periods beginning after 15 December 2017, including interim periods within that reporting period, though early

adoption is permitted for annual reporting periods beginning after 15 December 2016.

The new standard also permits two methods of adoption: retrospectively to each prior reporting period presented (full

retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the

date of initial application (the modified retrospective method). The Company elected to apply the modified retrospective

method, and is still evaluating the effect that this guidance will have on its consolidated financial statements and related

disclosures.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02),

which generally requires companies to recognize operating and financing lease liabilities and corresponding right-

of-use assets on the balance sheet. The guidance is effective for the interim and annual periods beginning on or after

December 15, 2018, and early adoption is permitted. For operating leases having initial or remaining non-cancelable

lease terms in excess of one year, the lessee shall disclose both of the following: a. Future minimum rental payments

required as of the date of the latest balance sheet presented, in the aggregate and for each of the five succeeding

fiscal years. b. The total of minimum rentals to be received in the future under non-cancelable subleases as of the date

of the latest balance sheet presented.

The Company is still evaluating the effect that this guidance will have on its consolidated financial statements and

related disclosures.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic

230): Restricted Cash (ASU 2016-18), which requires companies to include amounts generally described as restricted

cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and

end-of-period total amounts shown on the statement of cash flows. This guidance will be effective for the Company 1

January 2018 and early adoption is permitted. The Company does not expect the guidance will have a material impact

on its consolidated financial statements.

STRATEGICREPORT



OVERVIEW

In January 2017, the FASB issued authoritative guidance clarifying the definition of a business to assist companies with

evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The

standard is effective for the Company for the first quarter of fiscal 2019 and will be applied on a prospective basis. Early

adoption is permitted. The Company does not expect the adoption of the standard will have a material impact on its

consolidated financial statements.

In October 2016, the FASB issued authoritative guidance requiring the recognition of income tax consequences of

an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The standard is effective for the

Company for the first quarter of fiscal 2019 and will be applied on a modified retrospective basis. Early adoption is

permitted.

In August 2016, the FASB issued new authoritative guidance addressing eight specific cash flow issues with the

objective of reducing the existing diversity in practice in how certain transactions are presented and classified in

the statement of cash flows. The standard is effective for the Company for the first quarter of fiscal 2019 and will

be applied on a retrospective basis. Early adoption is permitted. The Company does not expect the adoption of the

standard will have a material impact on our consolidated financial statements.

NOTE 3: PROPERTY AND EQUIPMENT, NET

Composition:

Depreciation and amortization expense amounted to $ 3,784 and $ 2,527 for the years ended 31 December 2017 and

2016, respectively.

In 2017 the Company recorded an impairment of capitalized research and development costs in the amount of $ 447.

In connection with the restructuring plan, the Company recorded in 2017 an impairment of $152 relating to disposal

of certain office furniture and equipment which are included in restructuring charges in the statement of operations.

In 2017 and 2016, the Company recorded a loss on disposal of property and equipment in the amount of $ 77 and $

55, respectively.

In 2017 and 2016, the Company derecognised property and equipment in the amount of $ 2,602 and $ 2,927,

respectively, which were fully depreciated.

31 December

2017 2016

Cost:

Computers and software $ 1,659 $ 2,895

Office furniture and equipment 1,179 1,247

Electronic equipment 98 249

Capitalized research and development costs 10,465 7,488

Leasehold improvements 1,339 1,240

Total cost 14,740 13,119

Less: accumulated depreciation and amortization (5,944) (4,087)

Property and equipment, net $ 8,796 $ 9,032


TechnologyCustomer

relationshipsDatabase Trade name Total

31 December 2015 $ 22,346 $ 19,498 $ 5,124 $ 3,374 $ 50,342

Acquisition 125 - 33 - 158

Adjustment during the measurement period

- 457 - - 457

Amortization (6,194) (6,458) (564) (768) (13,984)

Impairment (396) - - - (396)

31 December 2016 $ 15,880 $ 13,498 $ 4,593 $ 2,606 $ 36,577

Acquisition 194 - - - 194

Amortization (4,741) (4,761) (587) (524) (10,613)

Impairment (9,327) (5,013) (1,270) (2,082) (17,692)

Disposal - (69) - - (69)

31 December 2017 $ 2,006 $ 3,655 $ 2,736 $ - $ 8,397

During the year 2017 and 2016 the Company recorded an impairment charges in the total amount of $ 17,692 and $ 396,

respectively. The impairment charges were attributed mostly to intangible assets related to the non-core activity for which sales

were lower than expected and the decision to abandon certain technologies.

Related deferred tax liabilities of $ 6,148 and $ 0 have also been written off and are included in taxes on income, as tax benefit, for

the years ended 31 December 2017 and 2016, respectively.

b. The estimated future amortisation expense of other intangible assets as of 31 December is as follows:

2018 4,634

2019 1,777

2020 1,074

2021 608

2022 304

$ 8,397

STRATEGICREPORT



OVERVIEW

31 December

2017 2016

Goodwill at beginning of year $ 97,015 $ 96,643

Acquisitions 418 -

Disposals (4,660) -

Impairment (9,005) -

Adjustment to goodwill during the measurement period 372

$ 83,768 $ 97,015

NOTE 5: GOODWILL

Changes in goodwill for the years ended 31 December 2017 and 2016 are as follows:

NOTE 6: FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table present liabilities measured at fair value on a recurring basis as of 31 December 2017 and 2016:

31 December 2017

Fair value measurements using input type

Level 1 Level 2 Level 3 Level 4

Assets:

Derivative asset - 22 - 22

Total financial asset - 22 - 22

Liabilities:

Liability to non-controlling interest - - 41,547 41,547

Contingent consideration in connection with acquisitions

- - 1,716 1,716

Total financial liabilities - - $ 43,263 $ 43,263

31 December 2016

Fair value measurements using input type

Level 1 Level 2 Level 3 Level 4

Liabilities:

Contingent consideration in connection with acquisitions

- - $ 17,358 $ 17,358

Derivative liabilities - 33 - 33

Total financial liabilities - $33 $ 17,358 $ 17,391

NOTE 4: OTHER INTANGIBLE ASSETS, NET

a. Other intangible assets comprise of the following:


NOTE 7: LAIBILITY TO NON-CONTROLLING INTEREST

a. The following table provides the movement in the redeemable non-controlling interests:

*) In June 2017 and November 2016, the non-controlling interest of Matomy Social exercised their put option,

and sold 10% of Matomy Social to the Company. As of 31 December 2017 and 2016, the Company holds

100% and 90% of Matomy Social, respectively.

**) During the fourth quarter of 2016, the non-controlling interest of Team Internet, Rainmaker Investments GmbH

(“Rainmaker”), exercised their put option and sold 10% of Team Internet to the Company. The payment was made in January

2017, and therefore the Company classified the respective amount from redeemable to current liabilities. Following the

exercise of the put option, the Company holds 80% of Team Internet shares.

On 28 December 2017, Matomy entered into an agreement with Rainmaker relating to the exercise of the second and

third sale exit option. The total consideration for the second sale exit is due no later than 15 March 2018. The consideration

for the third sale exit option is due no later than 30 November 2018 according to the formula set out in the Team Internet

Framework Agreement, with additional 10% premium. The parties also agreed that Rainmaker will be entitled to an

additional consideration of 8% of the net earnings of Team Internet during the period beginning on 1 September 2018 and

ending on 31 December 2018 and in the subsequent financial year beginning on 1 January and ending on 31 December

2019. In addition, a one-off bonus of $1,000 will be paid to Rainmaker for the extension of the cooperation between Team

Internet and its unrelated search engine provider beyond 31 July 2019. As of 31 December 2017 the Company recorded

a liability for the expected consideration based on fair value according to its best estimates. As of 31 December 2017 the

Company believes that it is premature to estimate the expected payment for the search engine renewal bonus, and therefore

no provision was recorded.

STRATEGICREPORT



OVERVIEW

31 December

2017 2016

Total fair balance at the beginning of the year $ 17,358 $ 18,091

Liability to non-controlling interest 41,547 -

Accretion of contingent liability related to acquisitions 359 712

Changes in fair value recognized in earnings (9,963) (821)

Payment of consideration during the period (5,794) (624)

Other adjustments (244) -

Total fair value at the end of year $ 43,263 $ 17,358

31 December

2017 2016

Redeemable non-controlling interest at beginning of year $ 23,691 $ 35,365

Decrease in redeemable non-controlling interests due to change in ownership in subsidiaries *)

(565) (565)

Revaluation of redeemable non-controlling interest in subsidiaries

17,099 3,141

Net income attributable to redeemable non-controlling interests 1,466 487

Dividend declaration/distributed to non-controlling interests (144) (961)

Classification of redeemable non-controlling interest into current liabilities **)

(41,547) (13,776)

Total fair value at the end of year $ - $ 23,691

NOTE 6: FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont.)

The following table summarizes the changes in the Company’s liabilities measured at fair value using significant unobservable

inputs (Level 3), during the year ended 31 December 2017 and 31 December 2016:

The fair value of the liability to non-controlling interests was estimated using the discounted cash flows method. The expected

payment is determined by forecasting the EBITDA and net earnings amounts (as defined in the agreement and described in Note

7a). The significant unobservable inputs are the EBITDA forecasts. The estimated fair value of the liability will increase (decrease)

if the EBITDA were higher (lower).

Years ended 31 December

2017 2016

Net loss attributable to Matomy Media Group Ltd before accre-tion of redeemable non-controlling interest

$ 15,923 $ 8,592

Accretion of redeemable non-controlling interest 17,099 3,141

Net loss attributable to Matomy Media Group Ltd. shareholders after accretion of redeemable non-controlling interest

$ 33,022 $ 11,733

b. The following table summarises the effect on the Company’s shareholders:


STRATEGICREPORT



OVERVIEW

NOTE 8: BANK LOANS AND CREDIT LINE

a. On 16 June 2014, the Company signed a loan agreement with an Israeli bank in an amount of $21,600.

The loan agreement requires repayment of 85% of the principal in 12 equal payments every three months

commencing 16 September 2014, and 15% of the principal in 4 equal payments every three months commencing

16 September 2017. The loan bears an interest of three months USD LIBOR plus 3.5% to be paid together with

the relevant portion of the principal. In relation to this loan, the Company is required to comply with certain

covenants, as defined in the loan agreement and its amendments. As of 31 December 2017, the Company was in

full compliance with the financial covenants.

b. As of 31 December 2017, the Company has an unsecured line of credit with Israeli banks which is available

to the Company based on meeting certain account receivable conditions, out of which, it utilized $ 8,269. The

Company presented the bank credit, net of cash deposits in the amount of $ 580, at the same bank account.

Interest rate of the credit line is USD LIBOR plus 3.25%. In relation to this line of credit, the Company is required

to comply with the same covenants as in loan agreement and its amendments. As of 31 December 2017, the

Company was in full compliance with the financial covenants and with the agreed account receivable conditions.

The line of credit and the loan describes in (a) above secured by way of: (i) a fixed charge over the unpaid equity

of the Company; and (ii) a floating charge over all the assets of the Company; and (iii) mutual guarantees between

the Israeli companies.

c. On 20 August 2015, the Company’s subsidiary Team Internet signed a term loan agreement with a German

bank in an amount of $ 1,427 (EUR 1,192 thousand based on the exchange rate on 31 December 2017). In

accordance with the loan agreement, repayment of the principal shall be made in 54 equal monthly payments,

commencing 31 March 2016. The loan is indexed to the Euro and bears an interest of 1.8% to be paid on a

monthly basis, commencing 31 August 2015.

d. On 28 April 2016, Team Internet signed a loan agreement with a German bank in an amount of $ 3,186 (EUR

2,660 thousand based on the exchange rate on 31 December 2017). In accordance with the loan agreement,

repayment of the principal shall be made in 20 equal quarterly payments, commencing 30 September 2016. The

loan is indexed to the Euro and bears an interest of 1.1% to be paid on a quarterly basis, commencing 30 June

2016.

e. On 28 September 2016, the Company’s subsidiary in the US (“Matomy US”) signed a loan agreement with

a bank in the US in an amount of $ 4,000, and a secured line of credit in the amount of $ 1,000. The line of

credit beard a used credit line interest rate of LIBOR plus 3.25% and was repaid in full in November 2017. The

term loan agreement requires repayment of principal and interest every 3 months commencing 28 December

2016. The loan bears an interest of three months USD LIBOR plus 3.65% and the line of credit bears a monthly

interest of LIBOR plus 3.25%. As security, the Company provided a guarantee to Matomy US, and Matomy US

and its subsidiary have granted a first priority lien on and security interest in all of their assets and provided

cross guaranties. In December 2017 the Company signed an addendum to the loan agreement, and repaid loan

principal of $ 500. The remaining principal of $ 1,834 was paid in full during February 2018.

f. On 10 January 2017, the Company’s subsidiary in the US signed a secured line of credit in the amount of $

5,000, all is utilized with a bank in the US. The line of credit bears an interest rate of LIBOR plus 3.25%, and an

interest of 0.35% on the unused credit line.

Matomy US and Optimatic, are required to comply with certain covenants, as defined in the term loan and line of

credit agreement and its amendments. As of 31 December 2017, both were in full compliance with the financial

covenants.

g. On 3 January 2017, the Company signed a term loan agreement with an Israeli bank in an amount of $ 2,000.

In accordance with the loan agreement, repayment of the principal and the interest shall be made in 12 equal

quarterly payments, commencing 10 April 2017. The loan bears an annual interest of three months USD LIBOR

plus 4.6%.

h. As of 31 December 2017, the aggregate principal annual maturities according to the loan agreement are as

follows:

2018 (current maturities) $ 5,089

2019 1,652

2020 1,030

2021 319

Total $ 8,090


STRATEGICREPORT



OVERVIEW

Minimum

lease

payments

Minimum sublease

rentals

Net future

minimum lease

commitment

2018 $ 2,732 $ 1,454 $ 1,278

2019 2,525 1,454 1,071

2020 2,413 1,454 959

2021 346 250 96

$ 8,016 $ 4,612 $ 3,404

NOTE 9: COMMITMENTS AND CONTINGENT LIABILITIES

a. The Company rents its facilities under operating lease agreements with a term expiring in 2021. Future minimum

lease commitments under non-cancellable operating leases for the year ended 31 December 2017 were as follows:

Rent expenses, net of sublease rentals, for the years ended 31 December 2017 and 2016, were $ 2,105 and $ 2,337,

respectively.

The Company has provided guarantees for rent expenses in the amount of $ 1,091.

The Company leases its motor vehicles under cancellable operating lease agreements until February 2020. The minimum

payment under these operating leases, upon cancellation of these lease agreements, was $ 5 as of 31 December 2017.

Lease expenses for motor vehicles for the years ended 31 December 2017 and 2016 were $ 130 and $ 133, respectively.

b. From time to time, the Company is party to ordinary and routine litigation incidental to its business. As of 31 December

2017 the Company does do not expect the outcome of any such litigation to have a material effect on its consolidated

financial position, results of operations, or cash flows.

NOTE 10: EQUITY

a. The Company’s equity is composed of shares of NIS 0.01 par value each, as follows:

31 December 2016 31 December 2017

Authorised Issued Outstanding Authorised Issued Outstanding

Number of shares

Ordinary shares 430,500,000 107,293,898 97,535,023 430,500,000 105,546,569 95,787,694

The Ordinary Shares confer upon the holders thereof the right to receive notices and to attend general meetings

of the Company, to be present thereat and to participate in and vote at such meetings, the right to participate in all

distributions of dividends (whether of cash, assets or in any other lawful way) made by the Company and the right

to participate with the other shareholders in the distribution of the surplus of assets of the Company which remains

available for distribution on winding-up.

b. Options issued to employees and directors:

Under the global share plan as approved in 2012 options and Restricted Share Unit (“RSU”) may be granted to

employees, directors, officers and consultants of the Company. Each option granted under the Plans is fully exercisable

up to 4 years and expires in between 7 to 10 years from the date of grant. As of 31 December 2017, there were

3,560,647 options available for future grants under the plan.

Any options, which are forfeited or not exercised before expiration, become available for future grants.

A summary of the activity in options granted to employees and directors is as follows:

Number of optionsWeighted-average

exercise price

Weighted- average remaining contractual

term (in years)

Aggregate intrinsic value

Outstanding at 1 January 2017

7,409,845 $ 1.46 5.1 1,480

Granted 730,344 $ 1.23

Exercised (791,229) $ 1.13

Forfeited (2,616,301) $ 1.43

Outstanding at 31 December 2017

4,732,659 $ 1.50 6.09 3

Exercisable at 31 December 2017

2,463,393 $ 1.53 3.85 3

As of 31 December 2017, the total compensation cost related to options granted to employees and directors, not yet recognized

amounted to $ 787.

The aggregate intrinsic value of the outstanding stock options at 31 December 2017 and 2016, represents the intrinsic value

of 5,000 and 5,225,268 outstanding options that are in-the-money as of such dates. The remaining 4,727,659 and 2,189,577

outstanding options are out-of-the-money as of 31 December 2017 and 2016, and their intrinsic value was considered as zero.

The aggregate intrinsic value of the exercisable stock options at 31 December 2017 represents the intrinsic value of 5,000

exercisable options that are in-the-money as of such dates. The remaining 2,458,393 exercisable options are out-of-the-money

as of 31 December 2017, and their intrinsic value was considered as zero.

Total intrinsic value of options exercised during the years ended 31 December 2017 and 2016 was $ 0 and $ 1,088, respectively.

The weighted average grant date fair values of options granted for the years ended 31 December 2017 and 2016 were

$ 0.55 and $ 1.08, respectively.

c. Options to non-employees:

The Company’s outstanding options to non-employees as of 31 December 2017 were as follows:

Issuance dateOptions for

Ordinary sharesExercise price

per shareOptions exercisable Exercisable through

January 2010 32,044 0.21 32,044 January 2018

No stock-based compensation expense was recorded in respect of options granted to non-employees in the years ended 31 December 2017 and 2016.

In 2017 and 2016, no options to non-employees were exercised.


STRATEGICREPORT



OVERVIEW

NOTE 10: EQUITY (cont.)

d. Restricted Share Units (“RSU”) issued to employees and directors:

Number of RSU’s

Unvested at 1 January 2017 1,472,500

Granted 506,344

Vested (702,000)

Forfeited (182,500)

Unvested at 31 December 2017 1,094,344

The weighted average grant date fair value per share for the year ended 31 December 2017 and 2016 was $ 1.22 and $ 1.35, respectively.

As of 31 December 2017, the total compensation cost related to RSUs granted to employees, not yet recognized amounted to $ 538.

e. Treasury shares

As of 31 December 2017, and 2016, treasury shares amounted to 10,970,111 shares of which 1,211,236 shares are held by Team Internet, and are considered outstanding.

NOTE 11: LOSS PER SHARE

The following table sets forth the computation of basic and diluted loss per share

The total weighted average number of shares related to the outstanding options excluded from the calculations of diluted earnings per share, since they would have an anti-dilutive effect, was 5,859,047 and 10,159,124 for years 2017 and 2016, respectively.

NOTE 12: TAXES ON INCOME

a. Israeli taxation:1. Corporate tax rates in Israel:

The Israeli corporate income tax rate was 24% in 2017 and 25% in 2016.

In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from 1 January 2017 and to 23% effective from 1 January 2018.

2. Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (“the Law”):

As of 31 December 2017, the Company had $ 6,527 of tax-exempt income attributable to its Privileged Enterprise program resulting from 2012. The Company does not intend to distribute any amounts of its undistributed tax-exempt income as dividends as it intends to reinvest its tax-exempt income within the Company. Accordingly, no deferred income taxes have been provided on income attributable to the Company’s Privileged Enterprise programs as the undistributed tax-exempt income is essentially permanent in duration. If such tax exempt income is distributed, it would be taxed at the reduced corporate tax rate applicable to such profits (25%) and an income tax liability of approximately $ 1,632 would be incurred as of 31 December 2017.

3. Carryforward operating tax losses of the Israeli parent and its Israelis subsidiaries amounted to $ 20,600 as of 31 December 2017 and may be used indefinitely.

b. Income taxes on non-Israeli subsidiaries:

Non-Israeli subsidiaries are taxed according to the tax laws in their respective country of residence. The Company’s main non-Israeli subsidiaries are located in Germany and in the United States, and are subject to tax rate of approximately 33% and 35%, respectively.

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which among other provisions, reduced the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018.

At 31 December 2017, the Company have made reasonable estimates of the effects on the existing deferred tax balances for which provisional amounts have been recorded.

The Company re-measured certain of its U.S. deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future. The aforesaid provisional amounts are based on the Company’s initial analysis of the Act as of 31 December 2017. Given the significant complexity of the Act, anticipated guidance from the U.S. Treasury about implementing the Act, the potential for additional guidance from the Financial Accounting Standards Board related to the Act, as well as additional analysis and revisions to be conducted by the Company, these estimates may be adjusted during 2018.

Carryforward operating tax losses of its Canadian and US subsidiaries amounted to $ 9,200 as of 31 December 2017 which can be carried forward and offset against taxable income up to 20 years, expiring between fiscal 2035 and fiscal 2036.


2017 2016

Basic and diluted net loss attributable to Matomy Media Group Ltd. (Note 8b)

$ (33,022) $ (11,733)

Weighted average number of shares used in computing basic and diluted net loss per share (in thousands)

95,474 92,884

Basic and diluted loss per ordinary shares (in dollars) $ (0.35) $ (0.13)


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OVERVIEW

NOTE 12: TAXES ON INCOME (Cont.)

c. Deferred tax assets and liabilities:

Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts recorded for tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

f. A reconciliation of the beginning and ending amount of unrecognised tax benefits related to uncertain tax positions is as follows:

31 December

2017 2016

Deferred tax assets:

Carry forward losses $ 6,711 $ 2,799

Research and development expenses 948 542

Allowance for doubtful debts 254 892

Intangible assets 1,141 1,003

Other 742 420

Gross deferred tax assets 9,796 5,656

Valuation allowance (8,763) (4,284)

Total deferred tax assets 1,033 1,372

Deferred tax liabilities:

Intangible assets 1,246 9,218

Gain on achieving control 2,022 2,022

Deductible goodwill 829 1,207

Other 347 73

Deferred tax liabilities $ 4,444 $ 12,520

Deferred tax liabilities, net (3,411) (11,148)

The net change in the valuation allowance primarily reflects an increase in deferred tax assets on net operating losses and other temporary differences for which full valuation allowance is recorded.


2017 2016

Domestic $ (16,230) $ (6,859)

Foreign (484) 3,516

$ (16,714) $ (3,343)

31 December

2017 2016

Beginning balance $ 169 $ 139

Increase related to tax positions taken during prior years 24 66

Increases related to tax positions taken during the current year - 103

Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations

- (139)

Ending balance $ 193 $ 169


2017 2016

Current:

Domestic $ 71 $ 268

Foreign 5,585 5,452

5,656 5,720

Deferred:

Domestic (145) 1,731

Foreign (7,656) (2,762)

(7,801) (1,031)

$ (2,145) $ 4,689

d. Income (loss) before taxes on income is comprised as follows:

e. Taxes on income (tax benefit) are comprised as follows:


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OVERVIEW

NOTE 12: TAXES ON INCOME (Cont.)

The entire amount of unrecognised tax benefits as of 31 December 2017, if recognised, would reduce the Company’s annual effective tax rate.

As of 31 December 2017, the Company and its subsidiaries in Israel and in the US received final, or considered final, tax assessments through 2013.

Team Internet received final tax assessments through 2013.

The Company does not expect uncertain tax positions to change significantly over the next 12 months, except in the case of settlements with tax authorities, the likelihood and timing of which is difficult to estimate.

During the years ended 31 December 2017 and 2016, the Company did not record any interest and exchange rate differences expenses related to prior years’ uncertain tax positions, since the amount was immaterial.

The Company believes that it has adequately provided for any reasonably foreseeable outcome related to tax audits and settlement. The final tax outcome of its tax audits could be different from that which is reflected in the Company’s income tax provisions and accruals. Such differences could have a material effect on the Company’s income tax provision and net loss in the period in which such determination is made.

g. Reconciliation between the theoretical tax expenses, assuming all income is taxed at the statutory rate in Israel and the actual income tax as reported in the statements of operations is as follows:

*) Results for tax purposes are measured under, Measurement of results for tax purposes under the Income Tax

(Inflationary Adjustments) Law, 1985, in terms of earnings in NIS. As explained in Note 2c, the financial statements

are measured in U.S. dollars. The difference between the annual changes in the NIS/dollar exchange rate causes a

difference between taxable income and the income before taxes shown in the financial statements. In accordance with

ASC 740-10-25-3(F), the Company has not provided deferred income taxes in respect of the difference between the

functional currency and the tax bases of assets and liabilities

NOTE 13: REPORTABLE SEGMENTS

a. Reportable segments:

The Company applies ASC 280, “Segment Reporting”. While the Company has offerings in multiple business units, the

Company’s business operates in one segment, and the Company’s chief operating decision maker evaluates the Company’s

financial information and resources and assesses the performance of these resources on a consolidated basis.

b. Revenues from business units:

Total revenues from external customers divided on the basis of the Company’s reporting units are as follows:


2017 2016

Income before taxes as reported in the statements of income $ (16,714) $ (3,343)

Statutory tax rate in Israel 24% 25%

Theoretical income tax benefit (4,011) (836)

Increase (decrease) in taxes resulting from: Effect of “Preferred Enterprise” status

$ - $ 729

Deferred taxes on losses and other temporary charges for which a valuation allowance was provided, net

4,479 4,258

Tax adjustment in respect of different tax rate of foreign subsidiaries (381) 493

Non-deductible expense including impairment charge, net (1,446) 394

Effect of foreign exchange rate *) (730) (55)

Change in future tax rate - (308)

Others (56) 14

$ (2,145) $ 4,689


2017 2016

Domain monetisation $ 105,358 $ 63,282

Mobfox 50,614 42,141

Non-core 67,649 128,885

Selling activity (see note 1b) 21,435 42,323

Total $ 245,056 $ 276,631


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OVERVIEW

c. Geographical information:

Revenues by geography are classified based on the location where the consumer completed the action that generated the

relevant revenues.

1. Revenues from external customers:

d. In the year ended 31 December 2017 and 2016, one customer contributed 39% and 20% of the Company’s revenues,

respectively, while no other customer contributed more than 10%.

2. Property and equipment, net:


2017 2016

United States $ 186,203 $ 180,048

Europe 30,228 44,132

Asia 12,016 17,922

Israel 88 200

Other 16,521 34,329

$ 245,056 $ 276,631


2017 2016

Financial income:

Interest income $ 16 $ 45

Foreign currency remeasurement, net - 659

Hedging transactions 324 -

Other - 32

340 736

Financial expenses:

Bank fees (628) (662)

Interest expense (1,078) (746)

Foreign currency remeasurement, net (787) -

Hedging transactions - (673)

Accretion of contingent payment obligation related to acquisitions

(359) (712)

Other (24) -

(2,872) (2,793)

$ (2,536) $ (2,057)

31 December

2017 2016

Israel $ 5,614 $ 5,665

United states 1,815 1,908

Germany 1,291 1,335

Other 76 124

Other

$ 8,796 $ 9,032

NOTE 14: FINANCIAL EXPENSES, NET NOTE 13: REPORTABLE SEGMENTS (Cont..)


NOTE 15: RELATED PARTIES

The Company has activity with related parties as part of its ordinary business. The majority of the related parties’ transactions include domain monetization activity with the non-controlling interest of Team Internet.

Revenues from related parties amounted to $ 56 and $ 711 for the years ended 31 December 2017 and 2016, respectively. Cost of revenues to related parties amounted to $ 3,736 and $ 2,552 for the years ended 31 December 2017 and 2016, respectively.

Trade receivables from related parties amounted to $ 0 and $ 132 for the years ended 31 December 2017 and 2016, respectively. Trade payables to related parties amounted to $ 678 and $ 268 for the years ended 31 December 2017 and 2016, respectively.

NOTE 16: RESTRUCTURING COSTS

During May 2017, the Company initiated a restructuring plan in order to focus on core activities of programmatic mobile, video and domain monetization, while significantly reducing operational costs moving forward, as well as other cost saving measures.

Pursuant to the restructuring plan, the Company has incurred cumulative charges of $ 924 (net of expense reimbursement of $358), as follows:

Payroll and related expenses $ 695

Lease facilities and related expenses 58

Property and equipment impairment 152

Other expenses 377

Expense reimbursement (see note 1b) (358)

$ 924

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OVERVIEW


Matomy Media Group Ltd.Shareholder Information

Company SecretaryIdo Barash

Registered Office6 Hanechoshet Street

Tel Aviv 6971070

Israel

Investor ContactPamela Becker

Matomy Media Group Ltd.

6 Hanechoshet Street

Tel Aviv 6971070

Israel

T: +972 74 716 1971

E: [email protected]

RegistrarsLink Asset Services

6th Floor

65 Gresham Street

London, EC2V 7NQ

AuditorsKost Forer Gabbay & Kasierer

A Member of Ernst & Young Global

144 Menachem Begin Road

Tel Aviv 6492102

Israel

Legal Advisers to Matomy as to English law Simmons & Simmons LLP

CityPoint

One Ropemaker Street

London EC2Y 9SS

United Kingdom

Legal Advisers to Matomy as to Israeli law S. Friedman & Co.

2 Weizmann Street

Tel Aviv 61330

Israel

Corporate BrokersCanaccord Genuity Limited

88 Wood Street

London EC2V 7QR

United Kingdom

Company websiteInvestor and shareholder related information can be found

on the Company website at: investors.matomy.com

STRATEGICREPORT



OVERVIEW


VADIMUS

132 | Matomy Media Group Ltd. Annual Report and Accounts 2017

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